Here's the historical sales, margin and earnings forecast for the group of 45 retailers that will start to report earnings this week. There's good news and there's bad news.
The good news is that the consensus is looking for a 90bp decline in margins, and -4.2% erosion in earnings in the fourth quarter. Definitely conservative at face value.
The bad news is that face value is worthless. We think we're likely to see an earnings decline for the group in the high single digits this quarter.
Moreover, the Street is looking for a very steady earnings rebound in 1Q and 2Q16. What this tells us is that the Street is largely assuming that the malaise we're seeing out there is largely weather-related, given the problems retailers had in Dec and Jan.
Is weather a problem? Yes. But there's more to it -- and anyone that says there's no weakness in the underlying economy is probably not being intellectually honest.
The punchline is that retailers will not simply be 'gifted' an up year in 2016. They're going to have to fight tooth and nail. We think more will be down for the year than will experience growth.
Multiples are not egregious, and in fact they look downright attractive. But it's not enough to be 'pretty cheap' when estimates are still too high. In order to ignore an earnings miss, a stock has to be incredibly cheap, very little likelihood of a miss, and offer exceptional long term growth (i.e. RH).
In the meantime, we're comfortable pushing the short side of our ledger -- FL, KSS, GPS, HIBB, TIF, and TGT to name a few.
KSS - Kohl's cuts chief digital officer, senior VP of store environment and development, & senior VP of communications
JWN - Nordstrom rack announces plans to open first Canadian store, a 38,600 sq ft. store that will open in 2018
TLRD - Tailored brands guides full-year EPS to low side of prior guidance after Jos. A. Bank struggles
JCP - JCPenney announces management changes -- Chief Merchant John Tighe to oversee product development and design, Supply Chain SVP Mike Robbins will oversee global sourcing
AdiBok, SKX - Adidas wins lawsuit preventing Skechers from selling 2 discontinued styles
WFM - Whole Foods centralizes management to cuts costs, improve relationship with suppliers
SIG - Signet Jewelers announces plans to delist from London Stock Exchange
JCP - JCPenney says Burberry lawsuit will have no financial impact