Looking for Hints of Shifting Consumer Habits in Q2 Results

Looming presence of Amazon

Author: Andria Cheng

August 7, 2017

Major retailers from Macy’s to Walmart will report fiscal second quarter earnings in the next few weeks, and the results will provide new signals of where and how consumers want to spend their time and money, and which sectors are likely to withstand pressure from Amazon. 

The department store segment, hurt by declining mall traffic, share loss to such retailers as TJ Maxx and consumers’ increased spending online and on experiences over material things,  is expected to trail all other sectors, according to Retail Metrics. Its data showed the group’s profit is expected to drop an average of 76%. Average same-store sales combined are expected to decline 3.4% following a year-earlier drop, making it the second-worst performing retail segment, according to Retail Metrics data. 

Office-supplies retailers, led by Staples, will be the industry’s worst performing segment in Q2 sales, as they continue to wrestle with not only increased Amazon competition but also with the digitization of workplace that decreased the need for traditional office supplies like paper.

Macy’s, Kohl’s, JC Penney, and Nordstrom, among department store retailers reporting this week, have all tried to respond to shifting consumer preferences in different ways and the industry will pay close attention to see if their moves have begun to resonate with shoppers. Macy’s, for instance, is adding its own off-price Backstage concept inside its own stores to keep from losing customers to the likes of TJ Maxx. JC Penney, meanwhile, is featuring more showrooms for appliances, a category that’s generated positive comparable sales. 

Meanwhile, Michael Kors, which recently agreed to buy luxury shoe label Jimmy Choo, and Ralph Lauren both are expected to report their quarterly results on Tuesday, giving a signal of the state of the luxury industry that’s also seen results hurt partly by declining department store and mall traffic.

Like department stores, the Q2 performance for both adult and teen apparel segments may not be pretty either. Retail Metrics data showed the segment, which has seen the bankruptcy filings of chains including The Limited and American Apparel, will post lower Q2 profit and sales. Victoria’s Secret parent L Brands, for instance, on Thursday reported a Q2 comparable sales decline after the lingerie chain showed increasing signs that even its supermodel “Angels” aren’t enough to keep it in the sexy column as always: Victoria’s Secret posted a 14% plunge in Q2 same-store sales. While getting rid of its swim and apparel businesses hurt sales, the core lingerie results also declined. Analysts have said its Pink label targeting younger shoppers has lost some share to the likes of American Eagle Outfitters’ Aerie brand.

“At a time when apparel sales are migrating online at an increasingly rapid clip, VS stands out as an anomaly, with its e-comm business in rapid decline,” Jefferies analyst Randal Konik said in a report on Sunday. “This is particularly concerning given their relatively young customer base (especially at PINK), as it shows the brand may no longer be resonating.”

The company will report earnings next week.

Other retail earnings to watch this week include Vitamin Shoppe, which like many other retailers has to answer the question of how it can fend off increased online competition led by Amazon, the looming presence and unspoken thread uniting retailers across various segments. Blue Apron’s results this week, meanwhile, will offer a taste of how it’s both attracting new customers and keeping existing ones staying hooked on the subscription plans, especially as its increased competition included that of a potential entry from Amazon itself as evidenced by a recent trademark filing.

Among the outperformers, discount and home-improvement segments will likely post higher Q2 sales and profits, according to Retail Metrics data. How they are beefing up their online sales and turning their physical stores into assets against Amazon will remain key focus when Walmart, Target and Home Depot report earnings next week. 

Photo credit: Glen McCallum on Unsplash