Retail To Finish Q2 Earnings Season As Challenges Continue

The second-quarter reporting season provided further evidence for the structural and fundamental turmoil experienced by the retailers. The retail earnings season thus far hasn't been inspiring enough, as the economic uncertainty has made consumers circumspect.

Additionally, the competitive threat posed by the online channel, to be precise Amazon.com, Inc. AMZN has taken the wind out of the sail of the retailers.

The shrinking sales have forced retailers to markdown their products, which impacts the margin and in turn the bottom line.

For most in the sector, it has been the case of shrinking top line and bleeding/dwindling bottom line. As has been the case always, budget retailers have withstood the sector-wise gloom to some extent. Reflecting the buoyancy in the housing market, home improvement retailers have shown promise.

The negative sentiment toward the sector is exemplified by the 12.2 percent drop in the SPDR S&P Retail (ETF) XRT. This compares to the 10.6 percent gain by the S&P 50 in the same period.

Source: Y Charts

Department Stores In Doldrums

Among department stores, Dillard's, Inc. DDS reported an unexpected loss for the second quarter amid a decline in revenues, which however, was not as worse as feared. On the day of the earnings release, the stock slumped close to 16 percent.

J C Penney Company Inc JCP reported a wider loss, which trailed expectation. Revenues, however, grew and beat the consensus estimate, despite comps declining.

Meanwhile, Kohl's Corporation KSS's second-quarter results were better than expected. Revenues were down marginally, with comps declining 0.4 percent.

Macy's Inc M also reported above-consensus results. The company forecasts sales to decline between 3.2 percent and 4.3 percent and earnings to be below estimates by most analysts.

However, luxury retailer Nordstrom, Inc. JWN's earnings came as relief, as it reported positive comps, along with better than expected headline numbers.

Riding High On Housing Market Momentum

Home improvement retailer Home Depot Inc HD said its second-quarter earnings, revenues and comps rose year over year, with all the key metrics exceeding forecasts. Additionally, the company raised its earnings forecast for the full year.

Budget Retailers Shine

Off-price retailer TJX Companies Inc TJX reported strong second-quarter results and raised its full-year guidance. In late May, Costco Wholesale Corporation COST also reported forecast-beating fiscal third-quarter earnings and positive comps. However, revenues trailed estimates.

Among others, Dicks Sporting Goods Inc DKS reported Tuesday worse-than-expected results and slashed its full-year outlook. The result? Shares are plunging over 20 percent.

Coach Inc COH shares are swooning over 13 percent on sub-par top-line performance and weak guidance. The earnings of the luxury handbag retailer, however, topped the forecast.