Department Store Callouts

 

With the major department stores having reported this week, here are the latest views on price elasticity from the front lines:

 

“So far our average regular price sales were up a little bit, but that’s mostly due to mix and it’s not really due so much to inflation. I think lot of what we’ve been hearing hasn’t really happened at least for us yet in terms of cost of goods flowing through to the customer. So we want to see what shakes out with that.” -JWN

 

“There's not one answer to how we've dealt with the pricing increases. In some cases where we know the customer is very value-oriented, we are not passing the cost increase completely or at all to the customer and hoping to make up the margin other places.” - M

 

“So far, the results we have gotten have kind of been what we expected broadly which is this kind of one to one for every increase in costs, there’s a corresponding decrease in units” – KSS

 

“The customer does not have much inelasticity desire at new price points. The share of opening price points was important to them and it continues to be the case” - JCP

 

 

If JWN isn’t been able to pass through price increases, neither is anyone else – not good for lower end and mid-tier players. Here’s something else to consider. Every department store raised guidance this week with the sole exception of JCP. Take a look at the price performance on the week and implied multiples for group below. We used the current price over the low end of company guidance for our P/E calculation.

 

For JCP, we assumed the low end of its previous guidance of $2.15-$2.20. Interestingly, this still warrants the second highest multiple in the group behind only JWN. If you take into account that it came in $0.07 shy of its Q2 guidance and is guiding Q3 another $0.07 below consensus estimates, full-year guidance would have had to come down to at least to $2.00 implying an even richer 13.3x multiple. Just for reference, we’re shaking out at $1.60 for the year suggesting at this price, JCP trades at the highest multiple of the group at 16.6x!

 

JCP remains at the top of our short list.

 

Department Store Callouts - DeptOutlooks 8 11

 

Department Store Callouts - Dept SIGMA 8 11

 

Casey Flavin

Director


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