Wall Street was poised to sustain its upward momentum on Thursday morning, with investors continuing to feel more comfortable with the likely future course of monetary policy after comments from Federal Reserve chair Jerome Powell on Wednesday afternoon. That had stock market futures moving slightly higher before the regular trading session began at 9:30 a.m. ET on Thursday.
One notable area of weakness was in the retail industry group. Investors have watched closely to see whether retail stocks would do well during the holiday season, but the latest news from several companies showed that there are still plenty of strains on retailers that could take a while to work through the system.
Pain in discount retail
A pair of discount retailers reported financial results that didn't inspire shareholders. Stock prices for both Dollar General (DG 0.30%) and Big Lots (BIG -0.58%) were lower on Thursday morning.
Dollar General shares fell more than 6% as the dollar-store retailer gave less-encouraging guidance for the remainder of its fiscal year. Sales for the quarter ending Oct. 28 were solid, with revenue climbing 11% on a 6.8% rise in same-store sales (comps) and earnings rising 12% to $2.33 per share. General believes that the cost pressures it's experiencing in obtaining inventory are temporary, but shareholders weren't pleased to hear about internal supply chain inefficiencies that led the retailer to cut its earnings growth projections nearly in half for the fiscal year ending Feb. 3, 2023.
Shares of Big Lots, meanwhile, were down almost 8% in the aftermath of its release of results for the fiscal third quarter ending Oct. 29. Revenue dropped 9.8% year over year, with comps falling 11.7%. Big Lots said that it made considerable progress in working through bloated inventory levels, but adjusted losses ballooned to $2.99 per share.
The fourth quarter isn't likely to get much better, either, with Big Lots projecting comps to fall by low-double-digit percentages.
A hard hit in fashion
The biggest drop among stocks early Thursday came from G-III Apparel Group (GIII 0.38%), which suffered a 30% decline. G-III's results didn't look entirely bad, with revenue rising 6% year over year to $1.08 billion in the quarter that ended Oct. 31. However, the apparel company bulked up its inventory in anticipation of long lead times due to supply chain constraints, and a heightened level of products on hand caused logistical problems at its distribution centers.
Despite projecting a strong order book for the holiday season and extensions of licenses for the Calvin Klein and Tommy Hilfiger brands, investors weren't pleased to see adjusted earnings fall 38% to $1.35 per share for the quarter. Projections for full-year earnings of $3 to $3.10 per share also didn't inspire confidence, given the $4.05 per share that G-III made last year.
Slower sales growth at Costco
Lastly, even Costco Wholesale (COST 0.17%) hasn't been immune to the pressures affecting retail stocks. The warehouse retailer's shares fell 3% early Thursday morning.
Costco reported sales of $19.17 billion in the four-week period ending Nov. 27. That was up just 5.7% from the same period a year ago, closing a 13-week period in which Costco's sales of $58.36 billion were up 7.9% year over year. E-commerce weighed notably on overall sales growth, as comps from the online channel were down 8.9% for the four-week period and 2.8% for the quarter even after removing the downward impact of adverse foreign exchange movements.
When you look across the retail industry, uncertainty from such a broad swath of retailers raises doubt about whether the consumer economy is starting to slow. Much will depend on how the holiday season actually fares compared to early projections, as stronger-than-expected performance could lead to a reversal in these share-price declines in 2023.
