Is it Amazon? Or Something Much Worse That’s Eating Retail? Mike Larson | Friday, February 19, 2016 at 4:20 pm
Blame Amazon.com (AMZN)? Or something much worse? That’s the question investors are (once again) wrestling with today in the wake of lousy retail news.
The latest casualty is department store chain Nordstrom (JWN). It warned last night that same-store sales at its full-price outlets dropped 3.2% during the holiday season. Pressure on margins and those weak sales drove profit down to $180 million, or $1 a share in the most recent quarter, from $255 million, or $1.32 a share in the year-earlier period.
Analysts were looking for $1.22 a share. In the wake of the disappointment, more than a dozen of Wall Street’s finest cut their price targets on Nordstrom shares. They’ve lost 30% of their value in the last year.
Meanwhile, Wal-Mart Stores (WMT) warned yesterday that sales would miss expectations. The giant retailer said it expects flat sales in the current year, down from the 3-4% growth forecast it issued back in October. Fourth-quarter profit dropped 8% year-over-year.
Wal-Mart lowered its sales outlook for the rest of the year. The Amazon effect? Or is there a bigger problem for the retail sector?
What’s more, Wal-Mart said the strong dollar and store closures would continue to weigh on results going forward. Wal-Mart U.S. CEO Greg Foran also said deflationary pressures on pricing would persist through at least 2017.
Finally, clothing supplier V.F. Corp. (VFC) reported weaker-than-expected sales and earnings in the most-recent quarter. The company makes North Face, Lee and Wrangler jeans, jackets, shirts and other products, and its per-share profit of 95 cents missed the average forecast of $1.01. Sales dropped 4.6%.
So what exactly is going on? Is this even more evidence the retail business is getting Amazon-ed? That the online retailer is stealing sales like crazy and traditional mall-based chains just can’t compete?
Or is this a sign that the economy is in worse shape than commonly appreciated? Gas prices have plunged, and government reports suggest wage and job growth remain healthy. The government’s retail sales report for January also showed a 0.6% rise in sales excluding autos, gas, building materials, and food. That was a larger “core” gain than economists expected.
“Is this a sign that the economy is in worse shape than commonly appreciated?”
But if that’s the case, why do we keep getting warnings like these? It’s not like Wal-Mart is some tiny company whose updates we can safely ignore. It’s the biggest retailer in the world. And it’s not like buying Amazon and selling Wal-Mart is working anymore; Amazon shares have dropped almost 21% year-to-date, while Wal-Mart shares have bounced by around 5%.
Here’s my read on the situation: The U.S. economy and U.S. consumer aren’t in very good shape … and that the trend is worsening with time. Tighter credit conditions, weaker consumer sentiment, rising costs for non-optional expenses, like health care, housing and more, are really starting to bite.
So it’s not that Amazon is stealing a greater share of the retail pie. It’s that the overall pie is shrinking! If I’m right, it’s going to be another serious negative for the stock market to confront.
Now that I’ve said my piece, what’s your take here? Are consumers in trouble? Or just traditional retailers? Is Amazon.com still a buy because it’s eating everyone’s lunch? Or are the warnings from traditional retailers bad news for the online retailer, too, because they signal broad-based weakening? What does this all mean for stocks? Hit up the discussion board and weigh in when you get a minute.
Poster Comment:
The hazards of the market.