It’s no secret that traditional retailers have had a tough go of it as e-commerce competitors bag a bigger share of the market, and the holiday selling season, the most important for most retailers, might underscore the issue.
When the results of some of the largest retailers come out early next week—starting Tuesday pre-market with Macy's Inc M, Wal-Mart Stores Inc WMT and Home Depot Inc HD—some analysts say they will be listening for executives’ take on the economy and its impact on consumer spending.
Retailers have reported that traffic at malls and shopping centers started out strong on Black Friday, but dwindled as the holidays got closer, according to Thomson Reuters Corp TRI. When consumers did shop, they tended to opt for apparel, shoes and accessories that were deeply discounted, which prompted 65 companies to warn investors that their earnings reports would be lower than expected in Q4. Of those, 31% came from the apparel sector, the Thomson Reuters report said. That list included M, which noted in a revised guidance press release that its “performance during the holiday season reflects the broader challenges facing much of the retail industry.”
M’s Restructuring Efforts
M also said in January that it’s embarking on a “significant restructuring,” which includes shuttering 68 stores in 2017, part of a plan announced in August 2016 to close 100 stores and sell off properties. The retailer also said it would eliminate layers of management to reduce costs, add agility to decision making and reduce field infrastructure. In total, it expects 6200 people to lose their jobs.
Some analysts might want to know how those plans are progressing. M said the restructuring would save some $550 million this year and allow it to invest $250 million of that back into the retailer’s online operations.
Other analysts might be interested in learning how M is boosting its Macy’s Backstage off-price locations and the Bluemercury beauty-specialty stores, as well as the progress of new stores planned for Kuwait this year and Abu Dhabi in 2018.
Many analysts also expect some discussion about takeover talks with Canada’s Hudson's Bay Co HBC, which surfaced in published reports earlier this month. HBC also owns the Lord & Taylor and Saks Fifth Avenue department stores.
Wall Street analysts have a consensus revenue estimate of $8.59 billion, below the $8.87 billion reported a year ago, according to third-party estimates on the Earnings Analysis* tab on the thinkorswim platform from TD Ameritrade. On a per-share basis, earnings are expected to come in at $1.97, shy of last year’s $2.09 a share.
The options market has priced in an expected share price move of about 6% in either direction around the earnings release, according to the Market Maker Move indicator on the thinkorswim platform.
Call options trading has been heaviest at the weekly 32.5 strike while puts have been active at the 30 strike. The implied volatility is elevated at the 94th percentile. (Please remember past performance is no guarantee of future results.)
Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation, to sell the underlying security at a predetermined price over a set period of time.
WMT and Its E-Commerce Efforts
While WMT also is facing stiff e-commerce competition, it appears to be embracing online retailers outside its brand with recent purchases of small Internet-based retailers. This week it announced that it had acquired an outdoor e-commerce retailer called Moosejaw, following January’s acquisition of ShoeBuy.com. Last year, it paid $3.3 billion for Jet.com and put that retailer’s management team in charge of all of WMT’s e-commerce efforts.
Meanwhile, in its efforts to better compete against Amazon.com, Inc. AMZN, WMT announced last month that it was ditching its membership ShippingPass program in favor of offering free two-day shipping on all online orders over $35.
Also last month, WMT cut nearly 1,000 jobs from its corporate office, following on Chief Executive Doug McMillon’s commitment to cut operating costs while boosting e-commerce sales and improving existing stores, according to published reports. Since early 2016, WMT has eliminated more than 18,000 jobs, according to the Wall Street Journal. But earlier this year, WMT said it plans to add 10,000 jobs by the end of this year, which appear likely to come from new-store openings and new e-commerce activities.
Some analysts say they may be listening for WMT’s insight on international markets, where it has a big presence, and from where it generates about 23% of total revenue. Net sales of Walmart International fell 4.8% in Q3, hit by currency fluctuations, the company said.
On Wall Street, average revenue estimates from third party analysts are coming in at $130.78 billion, a tick above last year’s $129.67 billion, according to the third-party estimates on the Earnings Analysis* tab on the thinkorswim® platform. Earnings per-share are expected to fall to $1.29 from $1.49 in the year-ago period.
The options market has priced in an expected share price move of about 3% in either direction around the earnings release, according to the Market Maker Move indicator on the thinkorswim platform.
Call options trading has been heaviest at the weekly 69 and 70 strikes while puts have been active at the 67.5 strike. The implied volatility is at the 47th percentile. (Please remember past performance is no guarantee of future results.)
Can HD Nail It Again?
While many bricks-and-mortar retailers appear to be getting hammered by tight consumer spending, HD seems to be reaping the rewards of homeowners’ renewed interest in updating and improving their dwellings. The largest do-it-yourself retailer has logged 15 straight quarters of growth in revenues and earnings, and is expected to make it 16 when it releases Q4 results.
For the first nine months of 2016, the company reported a more than 7% increase in revenues and a nearly 6% uptick in comparable store sales, an important industry metric that measures growth at stores open longer than a year. Analysts say that has come as the company has done what many other retailers are doing: investing in e-commerce. In Q3, HD’s online sales represented 5.6% of its revenues, according to its Q3 release. In 2011, that number was just 1%.
HD recently introduced a program that allows customers to get online orders delivered from their local store. The company said it has typically had 40% of its online orders picked up at stores. But since a soft rollout of the delivery service in Q3, HD said it charted double-digit increases in the number of deliveries. Analysts might like to know how that has impacted store traffic and how quickly it can be expanded to all of HD’s 2,200 stores.
Revenue estimates from third-party Wall Street analysts are coming in at $21.79 billion, compared with $20.98 from a year ago, according to the Earnings Analysis* tab on the thinkorswim platform. On a per-share basis, earnings are expected to come in at $1.32, better than the year-ago period of $1.17. HD has beaten Wall Street’s expectations in 12 of the past 15 quarters.
The options market has priced in an expected share price move of just under 3% in either direction around the earnings release, according to the Market Maker Move indicator on the thinkorswim platform.
Call options trading has been most notable at the weekly 146 strike while puts have been active at the 139 strike. The implied volatility is at the 31st percentile. (Please remember past performance is no guarantee of future results.)
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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