The retail wreckage of the past week will likely worsen over the next few days, as more retail companies release operating results that are expected to be ugly.
A recent flurry of negative earnings reports from companies that operate physical stores has pummeled their shares, spreading pessimism on Wall Street about consumer intentions and dragging down the broader markets. Are traditional retail stores experiencing a slump or a death rattle?
One of the surest ways to make money over the long haul is to invest in companies with "disruptive technologies" that are transforming customer behavior and business models. The rise of e-commerce pioneer Amazon (AMZN) - Get Amazon.com, Inc. Report epitomizes that capitalist dynamic.
Online shopping has upended the retail business and turned many once-dominant brand-name stores into dinosaurs, much the same way web-based publishing has decimated print publishing and laid waste to famous magazine and newspaper titles.
Technological disruption poses both opportunity and peril for investors. Below, we examine the developments to expect in the coming week and how to play them. But first, here's an unflinching look at last week's carnage in the retail sector.
Driven down by falling sales and disappointing quarterly earnings reports, the following major stores have posted these five-day stock declines: Macy's (M) - Get Macy's Inc Report (-17.05%), Kohl's (KSS) - Get Kohl's Corporation (KSS) Report (-13.63%), Dillard's (DDS) - Get Dillard's, Inc. Class A Report (-11.45%), Nordstrom (JWN) - Get Nordstrom, Inc. (JWN) Report (-19.23%), and J.C. Penney (JCP) - Get J. C. Penney Company, Inc. Report (-7.40).
The SPDR S&P Retail ETF (XRT) - Get SPDR S&P Retail ETF Report has registered a decline of 4.58% over the past five days and a decline of 5.09% for the year, compared to a decline of 0.11% and a gain of 0.44%, respectively, for the S&P 500 (SPY) - Get SPDR S&P 500 ETF Trust Report .
Some traditional stores are struggling to make the adjustment to the consumer's deepening love affair with online shopping. Wal-MartStores (WMT) - Get Walmart Inc. Report , the King of the "Big Box" stores, announced last week that it would start testing a two-day shipping service, at half the level of Amazon's prices. Wal-Mart said that it was plowing $2 billion into a campaign to enhance its e-commerce platform, a cash hoard that, ironically, was raised by shuttering up to 150 underperforming physical stores.
Our take is that Wal-Mart's latest e-commerce moves smack of desperation, and they're little, too late.
Wal-Mart once bestrode the American retailing landscape like a colossus, but it is increasingly looking like a fallen giant. WMT shares registered declines of 4.76% last week and 18.05% over the past year. Analysts have slashed their one-year growth projections for WMT, a stock that was previously considered a widows-and-orphans "sure thing" for retirement portfolios.
More clues to retailing's fate will arrive in coming days. Scheduled to report earnings this week are Wal-Mart (WMT) - Get Walmart Inc. Report , Target (TGT) - Get Target Corporation Report , TJX Companies (TJX) - Get TJX Companies Inc Report , GAP (GPS) - Get Gap, Inc. (GPS) Report , Staples (SPLS) , Home Depot (HD) - Get Home Depot, Inc. (HD) Report , Lowe's (LOW) - Get Lowe's Companies, Inc. (LOW) Report, L Brands (LB) - Get L Brands, Inc. (LB) Report , Urban Outfitters (URBN) - Get Urban Outfitters, Inc. Report , Dollar Tree (DLTR) - Get Dollar Tree, Inc. Report , hhgregg (HGG) , Perry Ellis (PERY) - Get Perry Ellis International, Inc. Report , Dick's Sporting Goods (DKS) - Get Dick's Sporting Goods, Inc. Report , Foot Locker (FL) - Get Foot Locker, Inc. Report , and Ross Stores (ROST) - Get Ross Stores, Inc. Report .
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The earnings prognosis for most of those companies is poor, which is sure to drag on the major indexes. Let's put a spotlight on industry bellwether Wal-Mart, which reports first-quarter fiscal 2017 earnings on May 19.
The analyst consensus is that Wal-Mart will post earnings per share (EPS) of 89 cents, down from $1.03 in the same quarter a year ago. Last quarter, the retail giant posted a positive earnings surprise of 2.05%. Don't expect much this time around. Huge e-commerce expenses, intense competition from Amazon and bargain-priced dollar stores, and declining foot traffic are clobbering WMT's top and bottom lines.
When it enjoyed a seemingly limitless expansion mode, Wal-Mart once fought political battles against upscale communities that didn't want a Wal-Mart in their backyards. Now the worm has turned, as the company pursues plans to close 269 stores in the U.S and globally.
Meanwhile, on the economic calendar this week are two relevant reports that bear close watching: E-Commerce Sales, on Tuesday, and Bloomberg's Consumer Comfort Survey, on Thursday.
Further sharp declines among retail stocks and, accordingly, the broader markets, probably lay ahead this week. The upshot: Keep your powder dry, until the retail mayhem settles down.
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John Persinos is editorial manager and investment analyst atInvesting Daily. At the time of publication, the author held no positions in the stocks mentioned.