Which Retailers Have Positive Momentum Heading Into the Second Half of 2014?

The retail sector had a miserable winter season with bad weather conditions negatively impacting sales at many stores and forcing some stores to even close temporarily. The spring/summer season is expected to turn things around, and companies like Macy's (NYSE: M  ) , J.C. Penney (NYSE: JCP  ) , and Urban Outfitters (NASDAQ: URBN  ) showed signs of improvement in their fiscal 2014 first-quarter earnings releases.

Both Macy's and J.C. Penney reported-better-than expected results. Macy's reported earnings per share that were $0.01 higher than expected, and J.C. Penney reported a lower loss per share than expected of -$1.14 versus the anticipated loss of -$1.25. While Urban Outfitters did miss its profit per share estimate of $0.27 by a penny, revenue of $686.3 million was higher than the market's first-quarter revenue estimate of $680.2 million.

Macy's rewards investors with a hefty dividend increase
Macy's first-quarter sales for fiscal 2014 decreased 1.7% to $6.28 billion, and comp-store sales fell 1.6%. Net income for the 13 weeks ended on May 3 was $224 million, an increase of 3.2% over the same period last year. Diluted EPS rose 9% to $0.60 from $0.55 reported in the first quarter of 2013.

While top-line results weren't very impressive, the company showed confidence in its ongoing strategies and reaffirmed its full-year guidance disclosed in January. Macy's board also believes the company will finish the year on a high note and authorized a dividend increase of 25%. The higher dividend of $31.25 per share will be paid on July 1.

There was also an increase to the dollar amount of shares that can be repurchased by $1.5 billion, bringing the total share-repurchase authorization to $2.5 billion. So, depending on what happens in the next few quarters, investors may see share-buyback activity, which will help to boost the share price. By the end of fiscal 2014, Macy's expects sales growth of 2.5% to 3% and forecast diluted EPS of between $4.40 and $4.50.

J.C. Penney's CEO switch attributed to better results
J.C. Penney reported improving same-store sales and gross margin for the first quarter of 2014. Same-store sales were up 6.2%, and net sales grew to $2.8 billion from $2.64 billion reported in the first quarter of 2013. The gross margin was 33.1%, up from 30.8% in the same period last year and improving by 230 basis points. With Mike Ullman at the helm, who was replaced and has returned to the company as CEO, the retailer's marketing strategy was altered and more promotions were added to attract Penney's principal target market: middle-income consumers.

Despite the improvements, Penney's debt levels are high, with total debt at $5.6 billion, and are a cause for concern if sales are weak over the next few quarters. In order to beef up cash, the company entered into a credit facility with several banks worth $2.35 billion. The company is expected to finish 2014 with $2 billion in cash. Penney's shares closed up about 16% after the earnings release; however, a downgrade from Well Fargo to underperform from market perform has put downward pressure on the stock, and it currently trades for around $9.

Urban Outfitters has higher costs amid higher revenue
While Penney has increasing debt levels, Urban Outfitters has rising expenses; and sales at its namesake brand are lagging. The company's five brands -- Anthropologie, Bhldn, Free People, Terrain, and Urban Outfitters -- posted combined net sales of $686 million, up 6% from the same period last year. Comp- store sales were highest at Free People, up 25%, and Anthropologie, up 8%, while Urban Outfitters dragged down results with a decrease of 12%. Higher marketing expenses, which increased e-commerce traffic, were the main reason for the company's 8% rise in selling, general, and administrative expenses.

The gross margin dropped to 34.8% from 36.8%, mostly due to new store expenses and the comp-store sales decline at Urban Outfitters. The company's namesake has suffered through some marketing hiccups lately, such as complaints from customers on T-shirts sold with questionable messages. Urban has also made fashion choices that have failed to resonate with customers. It also doesn't help that fast-fashion retailers, like H&M and Forever 21, have done a better job at wooing the teen and young-adult demographic. Through May 19, Urban's shares have fallen about 19% in the past 12 months.

My Foolish conclusion
An improving job market will be key for these companies to report results in the next two quarters that show they are on more solid footing. J.C. Penney and Macy's are the best positioned to perform well as the calendar moves closer to the school and holiday gift-giving seasons. Penney's debt levels should be monitored, especially if sales don't show an uptrend in the next few quarters. Urban Outfitters' internal issues may need additional attention before revenue and shares move considerably higher.

Your credit card may soon be completely worthless
The plastic in your wallet is about to go the way of the typewriter, the VCR, and the 8-track tape player. When it does, a handful of investors could stand to get very rich. You can join them -- but you must act now. An eye-opening new presentation reveals the full story on why your credit card is about to be worthless -- and highlights one little-known company sitting at the epicenter of an earth-shaking movement that could hand early investors the kind of profits we haven't seen since the dot-com days. Click here to watch this stunning video.

 


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

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: 2974473, ~/Articles/ArticleHandler.aspx, 11/27/2014 2:13:06 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...

Apple's next smart device (warning, it may shock you

Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early-in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!


Advertisement