If investors think the fourth quarter of last year was bad for retail stocks, they should brace for worse news out of the embattled sector. About two thirds of the nation’s retailers have ended their first quarter, and while a slew have already announced store closings, cost-cutting initiatives and more of a focus on their online offerings, the sales and revenue are expected to be even worse than the last quarter of 2016.
Take the prognosis put forth by market research firm Retail Metrics: According to CNBC, the firm is forecasting earnings for retailers to decline 6.8% for the first quarter, which would mark the worst three-month period since the fourth quarter of 2013 when earnings declined 7.1%. Sales aren’t expected to be much better either, with Retail Metrics forecasting an anemic uptick of just 1.6%. In the fourth quarter of 2013, they only increased 1%. "It has been a cruel [first quarter] for the industry," said Retail Metrics President Ken Perkins in a research report covered by CNBC.
There’s one word for what has been hurting traditional retailers during the first quarter: Amazon.com (AMZN). With the ecommerce giant offering low prices, free shipping and a host of other services that make it easy for consumers to shop online, the traditional retailers including Macy’s Inc. (M), Kohl’s Corp. (KSS), J.C. Penney Co. Inc. (JCP) and Target Corp. (TGT) have been struggling to respond. Their stocks have also been in the doldrums with shares of many of them down in the double-digit range so for this year. This year is expected to be a decisive one for department store operators and retailers, which are facing increasing pressure to remain relevant in the era of Amazon and two-day-free-shipping gratification. With many engaging in all sorts of strategies, investors and Wall Street will be paying close attention to what they have to say when they start reporting Q1 results. With that in mind, here’s a look at the winners and losers during the first quarter. (See also: Amazon Hits All-Time High as Analyst Predicts $1 Trillion Market Cap.)
Clear Winners Even in a Bad Retail Environment
Shares of Wal-Mart Stores Inc. (WMT)are up more than 4% so far this year despite a tough retail environment. It’s no secret Wal-Mart is facing tough competition from Amazon and has had to respond nearly in lockstep to the discounts and deals Amazon rolls out, but Walmart is doing OK in its own right compared to its rivals. In its fourth quarter, Walmart reported same-store comparisons of 1.8% driven by a 1.4% increase in store traffic. That was enough for it to surpass Wall Street expectations. That increase in comps during a tough fourth quarter was enough for Merrill Lynch to reiterate a buy on the stock last month and set an $88 price target, implying more than 20% growth in the shares this year.
Another top performing retailer during a depressing first quarter is home improvements retailer The Home Depot Inc. (HD). Home Depot is a little more insulated from the might of Amazon and is also benefiting from a recovery in the housing market. In fact, in late February, Morgan Stanley upgraded its rating on Home Depot to overweight from equal weight and raised the price target to $165. That means Morgan Stanley thinks the stock could increase 13% more this year. For the year, shares are up more than 8%.
Warehouse discount retailer Costco Wholesale Corp. (COST) is also having a good 2017 so far, with shares up 5%. Unlike department store operators and apparel stores, Costco has something similar to Amazon: membership fees, which means recurring revenue. And while other retailers are struggling, Costco is doing well enough that it is moving to raise its annual membership fees to $60 from $55 this coming June. Executive memberships are slated to increase to $120 from $110.
Retailer Losers Aplenty in First Quarter
For the retail industry, there were a lot of stocks that underperformed during the first quarter, but some fared worse than others. Take J.C. Penney: Its stock is down 33% this year and after a bad fourth quarter that included the holiday selling season, JCP announced it would close up to 140 stores. The stores account for 13% to 14% of JCP’s current store portfolio, but together they only draw 5% of annual sales. Penney's will also close two distribution centers in Florida and California. Meanwhile, department store operator Kohl’s is also having a tough start in 2017 with shares down more than 24%. But unlike J.C. Penney, Kohl’s isn’t reducing its store count in response.
While Macy’s has garnered a lot of interest because of its store closings and rough road, shares of Target are trading even lower than Macy’s so far this year. Target’s stock is down more than 27% for the year as investors continue to sell the stock after its dismal fourth-quarter results, which it reported in February. Not only did it miss Wall Street views on revenue and EPS it provided guidance for the first quarter that was lower than expectations. (See also: Target Unveils Reimagined Store Concept.)