This note was originally published May 17, 2013 at 11:03 in Retail
Performance in the department store group (JCPenney, Kohl's, Macy's, Nordstrom) this quarter diverged as meaningfully as we've seen in recent memory. We don't think its appropriate to simply look at where the companies came in relative to the Street, i.e., guidance. The best thing for us to do is triangulate the sales/inventory/margin performance for each of the four major department stores, and see how they have changed over the past four quarters relative to one another.
Bigger picture, each department store has a point where inventories are intersecting with margins. None of those points are within a stones throw of one another. Not even close. The trends are becoming more divergent as to the other way around.
- Kohl's (KSS): Widely viewed to be a positive print, margins headed back to zero-barrier (even with last year) but inventories slid the most out of the group -- so mush that we had to readjust the vertical axis on the chart.
- Nordstrom (JWN): Conversely, viewed as the biggest disappointment of the group. Yes, margins eroded sequentially, but JWN also showed proportionally the best improvement in inventories out of the group. In another two quarters, compares get much easier for JWN, and it's on a trend of improving inventories.
- Macy's (M): The steady performer in the group, but proportionally showed the worst inventory move aside from KSS. This is more of a concern for M given that it has been in the upper right hand quadrant for five-quarters and margins remain positive. In other words, it has more to lose.
- JCPenney (JCP): Lastly, JCP is in its own little cycle. Earnings-per-share were a disaster this quarter, and both inventory and margins are triangulating with sales in the dangerous lower left quadrant of this analysis (inventories up, margins down). But it is the only company that sequentially posted a moved headed up and to the right. When evaluating stock price movements, it does not matter as much which quadrant a company is in, but rather which one it is pointed toward. Ironically enough, out of all four, JCP comes out ahead in the 'incremental rate of change' contest.