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After all, the $1.16 trillion S&P 500 retail index <.SPXRT> has
climbed nearly 13 percent this year to a record high, roughly
double the 7 percent gain by the full S&P 500 <.SPX>.
That stalwart performance, however, has been delivered almost
entirely by a clutch of new 'retailers' that now account for
more than half of the value of the index: Amazon.com Inc
<AMZN.O>, Netflix Inc <NFLX.O> and Priceline Group Inc <PCLN.O>.
Moreover, it masks a broad slump in shares of traditional
retailers having their lunch eaten by disrupters like Amazon in
particular.
In fact, when the retail index's big three gainers are excluded,
the group's aggregate value has gained a lackluster 1.3 percent
this year and is some 8 percent shy of its high-water mark two
years ago.
Against that backdrop, next week brings a fresh look at how that
old guard of retail is holding up and whether a turn-around in
their flagging share performance might be in the offing.
First-quarter earnings reports from Macy's Inc <M.N>, Nordstrom
Inc <JWN.N>, Kohl's Corp <KSS.N> and JCPenney Co Inc <JCP.N> are
expected to be sobering, but could shed some light on whether
wrenching turn-around plans launched by some of them, including
thousands of layoffs, are starting to bear fruit.
Overall corporate earnings for the first quarter have been
strong, with growth for the entire S&P 500 pegged at 14.7
percent from a year earlier, the best since 2011, according to
Thomson Reuters data. But the consumer discretionary sector
<.SPLRCD>, which includes the department stores, is expected to
show just 3.9 percent growth, albeit that is up from an
estimated 1.4 percent a month ago.
"The consumer for the most part seems OK. Not everywhere," said
Tobias Levkovich, chief U.S. equity strategist at Citigroup.
But sales are expected to be middling for the department store
chain names. Analysts caution, however, that traditional
retailers may no longer be a true measure of consumer health as
people have new ways to spend.
"There will probably be a knee-jerk reaction the wrong way when
we hear some of those larger retailers come out and say foot
traffic in the mall is terrible," said Art Hogan, chief market
strategist at Wunderlich Securities in New York.
"Hopefully we don't start assuming that because people aren't
going to Macy's the consumer is dead."
Far from it. The government's main measure of the health of
consumer spending, the monthly retail sales report due out
Friday, is expected to show overall retail sales snapped back in
April after two straight declines.
Of the big four retail names set to report next week, only
Nordstrom is forecast to post an increase in earnings per share,
and that by just 2.8 percent, according to estimates from
Thomson Reuters I/B/E/S.
Macy's profit per share is seen sliding 13.5 percent and Kohl's
is expected to drop 6.4 percent. JCPenney, which posted its
first quarterly profit in three years in last year's fourth
quarter, is seen sliding back to a loss.
"There's a lot of headline risk attached to retailers so we're
not a big fan of owning a lot of the brick and mortar mass
retailers right now," said Nathan Thooft, senior managing
director, at Manulife Asset Management in Boston.
Indeed, all four of those reporting next week have lagged both
their own peer group and the wider market so far this year.
While Nordstrom is at least in the black with a modest 2 percent
gain, Macy's and Kohl's have both tumbled about 19 percent.
JCPenney, no longer a member of the S&P 500 retail group, has
plunged 34 percent.
As Manulife's Thooft puts it: "The valuations are starting to
get interesting, but at the same time you can't dismiss the fact
you have the Amazons of the world and the shift of the consumer
to be able to purchase more and more items online."
(To view a graphic on retail market capitalizations, click
http://reut.rs/2qM9xwD)
(Additional reporting by Sinead Carew and Caroline Valetkevitch;
Editing by Dan Burns and James Dalgleish)
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