Retailers to Post Sluggish Earnings After Long Winter

NEW YORK ( TheStreet) - Retailers are blaming extended cold weather this past winter for a decline in first-quarter sales, which will be reflected in companies' quarterly earnings, the bulk of which will be announced in the following two weeks.

Large department stores and discount retailers including Macy's ( M), Wal-Mart Stores ( WMT), JC Penney ( JCP), Kohl's ( KSS) and Nordstrom ( JWN) report later this the week. Best Buy ( BBY), Target ( TGT), Sears ( SHLD) reporting next week.

According to the Thomson Reuters Quarterly Same Store Sales Index of 78 retailers, same-store sales are expected to show a paltry 0.8% growth for the first quarter compared with 3.4% growth in the same period a year ago. Excluding Walmart, growth is expected to be 1% compared to 3.7% for the first quarter of 2012.

The long and sometimes difficult winter pushed some first quarter consumer activity in the second quarter, said Bank of America Merrill Lynch analyst Lorraine Hutchinson in a May 1 research note. Hutchinson lowered her earnings estimates for JCPenney, Kohl's, and Saks but raised her forecast for Nordstrom.

To offset lower first-quarter sales, large retailers sought to cut expenses while offering more promotions

"Early in the quarter, we saw week after week of increased in promotions," says Brian Sozzi, CEO of Belus Capital Advisors. "They had to what they had to do to clear the stuff."

Sozzi expects big retailers to generally report overall earnings in-line with consensus estimates. Both Target and JCPenney already warned investors of lower quarterly sales.

Target signaled on April 16 that first-quarter comparable store sales would be flat, particularly from lower sales of seasonal and weather-sensitive products. The Minneapolis-based company, which reports on May 22, said first-quarter adjusted EPS would be below its previous forecast of $1.10-$1.20 per share. (GAAP earnings would also be 28 cents lower than adjusted EPS due a variety of things including the early retirement of debt and gains from the sale of its credit card portfolio, it said.)

JCPenney said last week that first-quarter sales dropped by 16% over the prior year, to $2.64 billion. The company reports on May 16. Analysts, on average, are expecting the troubled retailer to post a loss of 86 cents a share, according to Thomson Reuters.

In the case of JCPenney, investors will also be looking for any strategic guidance from returning CEO Myron "Mike" Ullman. Ullman was brought back into office to replace Ron Johnson. The move led famed investor George Soros to take a 7.9% stake in JCPenney stock.

"While Ullman will have only been CEO for about seven weeks as of the earnings call, we think the market is expecting Mr. Ullman to outline his plan to stabilize JCPenney," Hutchinson writes. "If Mr. Ullman does not outline a clear and reasonable trajectory to stability, we would expect weakness in the stock."

One stock that might surprise investors to the upside is Best Buy.

Best Buy reports earnings on May 21. Analysts according to Thomson Reuters expect the company to post earnings of 25 cents per share, a decline of 65% compared to the year-earlier period. Revenue is expected to decline by 8% to $10.6 billion.

Sozzi is optimistic about the company. He has a buy rating on the stock.

Between cost-cutting measures and items that are doing much strong than expected, such as small gadgets and appliances, "areas you wouldn't necessarily think about," Sozzi says, "they could throw up a decent positive quarter."

As part of its ongoing turnaround strategy the struggling electronics retailer announced on April 30 that it was exiting its European joint venturewith Carphone Warehouse.

"This management team, under Hubert Joly and Sharon McCollam, is looking at the business differently than previous management, and that combined with opportune changes in supplier strength (less Apple ( AAPL) dominance) is redefining the model," according to an April 29 note by Credit Suisse analysts, led by Gary Balter. (One day later they announced the joint venture exit.)

Sozzi is less optimistic about Walmart, noting that in a recent shopping trip, he saw a lot of items that were "out-of-stock" and empty shelves.

Walmart reports on May 16. Analysts on average expect the company to report EPS of $1.15 a share, up 5% from the year-earlier period. Revenue is expected to inch up by 3% for the quarter to $11.6 billion.

Sozzi does not owns shares of Target, Best Buy or Wal-Mart.

Of course, with the colder weather seemingly past us, shoppers have been inhabiting stores again, finally stocking up on spring clothes.

"At the end of April, there seemed to be this pick up in retail sales and we saw that with the market preview reports" last week, Sozzi says. "That's a good positive sign and something I don't think is reflected in macroeconomic data."

Investors will be curious to hear any guidance from retailers about the second quarter.

-- Written by Laurie Kulikowski in New York.

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Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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