Retail Stocks Socked After Macy's 1Q Earnings Miss

consumer, shop, shopping, money, dollar, economy, spending, FBN

Wall Street is losing confidence in America’s bricks-and-mortar retail giants.

Shares of American apparel retailers dropped Thursday after department-store operator Macy’s (NYSE:M) revealed its ninth-straight quarter of same-store sales declines as first-quarter earnings widely missed expectations. The company’s CEO vowed to continue investing in digital and mobile businesses, but investors didn’t much care, sending shares plunging more than 17% to a new 52-week low.

Stock prices of JCPenney (NYSE:JCP), declined alongside Dillards (NYSE:DDS), Nordstrom (NYSE:JWN) -- which reports its quarterly financial performance after the closing bell -- Gap (NYSE:GPS) and Kohl’s, a brand that reported higher profit and in-store traffic in the first three months of the year.

Ticker Security Last Change Change %
M MACY'S INC. 16.48 -0.33 -1.96%
DDS DILLARD'S INC. 404.90 -7.19 -1.74%
JWN NORDSTROM INC. 21.10 -0.70 -3.23%
GPS GAP INC. 21.33 -0.68 -3.09%
KSS KOHL'S CORP. 19.85 -0.68 -3.31%

Despite the gloom in the retail sector, consumers say they remain optimistic about their economic situations, and have continued to spend their cash – just not in physical stores. A trend toward online shopping, sparked by Amazon’s (NASDAQ:AMZN) blockbuster growth, has put pressure on traditional retailers who depend on mall-based foot traffic.

While U.S. economic growth was weak in the first quarter due to a number of seasonal issues, S&P Global Market Intelligence predicts a 2.4% annualized rate this year alongside a declining unemployment rate and sustained levels of consumer confidence – all factors that should help support momentum in overall spending levels. Wall Street will get the latest snapshot of the American consumer Friday morning when government data on retail sales and consumer inflation are released alongside the University of Michigan’s update on consumer sentiment.

While the National Retail Federation expects retail sales to rise at a mid-single digit pace this year, CFRA equity analyst Efriam Levy says the department store segment will likely lag.

“We find the performance of some companies reminiscent of those achieved during the recession and immediate post-recession period of the fiscal years ending January 2009 through 2011,” he said in a note Thursday.

For evidence of the downward pressure on retailers, he pointed to Census Bureau data that showed department store sales dropped 5.6% in 2015 after slipping 2.1% the year prior likely due to growing popularity of online shopping.

“We don’t see this trend abating,” Levy said, adding that retail sales excluding the volatile automotive components rose 3.7% in the first two months of this year from 2016, while general merchandise sales were down just 0.9% to department-store sales’ 7.3% plunge.