McGough: 'The Retail Apocalypse Isn't Over. It's Apocalypse Now.'

07/05/18 03:03PM EDT

Editor's Note: Below is a brief excerpt transcribed from a recent edition of The Macro Show hosted by Retail analyst Brian McGough.

McGough: 'The Retail Apocalypse Isn't Over. It's Apocalypse Now.' - apocalypse

An analyst from another firm came out with a research call and said the retail apocalypse is over. But sorry, the apocalypse isn’t over. It’s apocalypse now.

There are a host of reasons for it.

Why were retail companies smoking numbers?

  1. Weather
  2. The calendar shift
  3. A great macro environment

And all of that accrued to the most profitable side of the business, bricks and mortar at the expense of e-commerce.

I can make a compelling argument that all of that is topping right now, like literally this month. So in terms of the incremental sales, which are coming off in the back half of this year, now you have a negative calendar shift which hurts sales by 200-300 basis points. Comps out there in retail sales land are getting really difficult, meaning sales slow even if you get a mean reversion to the point of 2-3%. Add it all together and this takes sales away from the store and that’s your really, really big margin hit and sales hit which is extremely abysmal.

Now, on the next slide you’ve got the Street’s quarterly expectations for operating margins. Now, naturally in the back half of this year there’s a big acceleration in operating margins because no one knows how to model. That’s not going to happen and then on the right hand side you’ve got your annual numbers. And of course, operating margins have been in a seven year decline and now analysts are modeling operating margins growth. Why?

McGough: 'The Retail Apocalypse Isn't Over. It's Apocalypse Now.' - retail margins

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McGough: 'The Retail Apocalypse Isn't Over. It's Apocalypse Now.' - the macro show

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