For Immediate Release
Chicago, IL – November 17, 2016 – Today, Zacks Equity Research discusses the Retail, part 1, including Zumiez Inc. (NASDAQ: -Free Report ), Costco Wholesale Corp. (NASDAQ: (COST - Free Report) -Free Report ), L Brands Inc. (NYSE: (LB - Free Report) -Free Report ), Buckle Inc. (NYSE: (BKE - Free Report) -Free Report ) and Gap Inc. (NYSE: (GPS - Free Report) -Free Report ).
Industry: Retail, part 1
Link: https://www.zacks.com/ commentary/95823/retail- industry-stock-outlook--- holiday-season-2016
Economic Rebound Helping Retailers?
Retailing involves buying large quantities of goods and selling them in smaller quantities to consumers for a profit. The health of the retail industry is an important economic indicator as it is linked directly to consumers and their propensity to spend. Consumer spending is the key to the well-being of the U.S. economy as it accounts for more than two-thirds of economic activity.
The link between consumer spending and the retail industry becomes more relevant as retail sales attract approximately 30% of total consumer spending in the U.S. Also, the retail industry ranks among the top U.S. industries and employs an enormous workforce, contributing to the health of the job market.
Before jumping on to the trends in retail, here’s a peek into the key economic indicators, which suggest where the market is heading.
On the whole, the U.S. economy looks in good shape, with many hoping that the incoming administration of Mr. Trump will help improve the economy’s growth trajectory even further. Growth had improved ahead of the election already, the Q3 GDP report confirmed. The U.S. economy expanded at an annual rate of 2.9% in the third quarter of 2016, much better than the 1.4% and 0.8% increase recorded in the second and first quarters, respectively. The rebound in inventory and strong gains in exports provided the much-needed boost to the economy.
While GDP growth in the first half of the year was on the low side, many key parts of the economy have consistently been on a growth trajectory. The improving labor and housing markets are notable examples in this regard. Wages have started growing lately as well after remaining underwhelming in the earlier part of the recovery. This is helping prop up the household sector’s buying power, which is showing up in the GDP report’s consumer spending numbers and the monthly retail sales data. All of this is raising hopes about spending trends this coming holiday season.
Key Retail Metrics
The key data in the retail industry analysis is comparable-store sales (comps) as it excludes sales at newly opened and closed stores. We observe that sales data for the month of October had a positive tone as most retailers posted better-than-expected comps. Further, most retailers either raised or reiterated their earnings per share guidance for the third quarter following the October sales performance.
The list of gainers in October was led by Washington-based retailer of sports-related teen apparel Zumiez Inc. (NASDAQ: -Free Report ) that reported a 10.2% increase in comps, with sales climbing 14.4% to $55.9 million from the year-ago period. This marked the company’s second consecutive month of comps growth after negative comps and dismal sales results for 17 straight quarters. Further, the company raised its third-quarter fiscal 2016 earnings outlook backed by greater-than-expected sales in the quarter-to-date period.
This was followed by warehouse retailer Costco Wholesale Corp. (NASDAQ: (COST - Free Report) -Free Report ) that posted a 2% rise in comps, while total sales rose 3% to $20.17 billion. Going down the line, the clothing retail chain L Brands Inc. (NYSE: (LB - Free Report) -Free Report ) posted a comps gain of 1% and sales improvement of 3% to $756.7 million. However, comps results for the month were lower than expected. The company reiterated its third-quarter earnings guidance.
On the other hand, The Buckle Inc. (NYSE: (BKE - Free Report) -Free Report ) disappointed the most with a 15.5% decline in comps and a 15.1% fall in net sales to $69.1 million for October. It was followed by apparel and accessories retailer Cato Corporation that reported a 6% decline in both comps and sales. Net sales were down to $68.9 million. Nonetheless, the company raised its earnings forecast for the third quarter due to lower markdown sales.
At the bottom of the list was the long distressed teen retailer The Gap Inc. (NYSE: (GPS - Free Report) -Free Report ) that reported a 1% decline in comps along with flat sales of $1.20 billion. Though the company’s comps gained from the positive customer response for its Old Navy product assortments and strong merchandise margins, results were impacted by the campus fire that hit its distribution center in Fishkill, NY in August.
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