Does JDA Software's Warning Spell Doom for Retailers?

The new year has started off on the right foot for a lot of investors and companies, with the S&P 500 rising in seven of the first eight trading sessions. Speculation is high that the earnings bar has been set too low and that many companies will simply walk over Wall Street's estimates. If only it were that easy for software licensing firms.

Three weeks ago, software licensing juggernaut Oracle (Nasdaq: ORCL  ) reported second-quarter results that missed the mark on both sales and profit. Even worse, Oracle's third-quarter forecast came in weaker than expected due to delays in getting deals finalized with its customers.

Fast-forwarding to last night, JDA Software (Nasdaq: JDAS  ) , a global provider of enterprise software solutions, also cautioned investors that it would miss its fourth-quarter sales projections. JDA now expects revenue of approximately $173 million, which falls markedly short of the $181.6 million Wall Street was looking for. The primary reason for the shortfall lies with JDA's software licensing segment, which now expects full-year revenue of $141 million, well below its original guidance of $145 million to $160 million.

JDA's guidance was just preliminary -- it will report full results later this month. But it could point to a greater problem beyond the software sector.

JDA CEO Hamish Brewer has speculated that weakened spending from North American retailers is the primary reason for the revenue shortfall. As Mr. Brewer postulated during last night's conference call, retailers may have begun cutting back orders dramatically in the final weeks of 2011 because already-depressed margins were going to come in even lower than expected if they didn't cut expenses. Mr. Brewer believes that a trend toward purchasing over the Internet and by smartphone may have driven business out of traditional retailers this holiday season.

While last night's news certainly isn't good for JDA, it could be crippling for an already aching retail sector. Just last week, J.C. Penney (NYSE: JCP  ) and American Eagle Outfitters (NYSE: AEO  ) told investors that profits during the holiday season simply wouldn't meet expectations. Both companies blamed excessive discounting as one of the primary reasons for the expected earnings shortfall. Kohl's, Target, and Gap (NYSE: GPS  ) also reported weaker-than-expected December same-store sales. Gap's 4% same-store decline is particularly notable because it perpetuates a string of failed turnaround attempts for the retailer.

With many retailers left to report critical fourth-quarter results, it remains to be seen if JDA's and Oracle's earnings warnings are sector events, or if they point to an even bigger issue with North American retailers. Either way, it's a trend worth keeping a close eye on this quarter.

What's your take on JDA Software's warning? Is this a problem with software licensors, or is there a bigger problem yet to be uncovered? Share your thoughts in the comments section below and consider adding the stocks mentioned here to your free and personalized watchlist so you can more easily keep track of the news in the retail and software sectors.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong. The Motley Fool owns shares of Oracle and Gap. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that only issues warnings regarding excessive transparency.


Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1757952, ~/Articles/ArticleHandler.aspx, 11/27/2014 7:00:29 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement