Stocks looked poised to keep moving higher on Monday morning, adding to positive momentum from a strong showing on Friday. Increasingly, investors believe that central banks won't be able to sustain tighter monetary policy in light of deteriorating economic conditions, and that belief is a potential positive for stocks that have taken hard hits due to rising rates. Stock index futures were up about half a percent early Monday morning.
The retail sector has been a focal point of attention for investors lately, and even before earnings season starts in earnest, some of the best-known retailers have come out with warnings about how the holiday quarter might not have lived up to expectations. In particular, Lululemon Athletica (LULU 0.80%) and Macy's (M 1.44%) weighed on Wall Street after giving updates on how their respective quarters went. What they said could have implications across retail and point to how consumers are faring in an inflationary environment.
Lululemon loses its balance
Shares of Lululemon Athletica were down 9% in premarket trading Monday morning. The yoga and athletic apparel retail specialist offered a business update, and investors weren't pleased with some of the numbers they saw.
At first glance, Lululemon's release seemed like good news. The company boosted its sales estimate for the quarter, taking its previous guidance of $2.605 billion to $2.655 billion and increasing it to a new range of between $2.66 billion and $2.7 billion. That would work out to a growth rate of 25% to 27% from year-ago levels.
However, some other projections weren't as good. Lululemon now expects earnings of between $4.22 and $4.27 per share, which is a slightly negative narrowing of its previous $4.20 to $4.30 per share range. Moreover, Lululemon's gross margin figures are likely to drop by about a full percentage point, reversing what it had anticipated would be a tiny increase. Even with greater cost savings than it initially projected, Lululemon won't be able to get better earnings as a result of margin pressures.
Expectations have been high for Lululemon, and failing to live up to those expectations has led to past plunges in its stock as well. As a barometer of shopping activity from high-end consumers who still have discretionary income to spend, Lululemon's updates could weigh on other premium brands.
Macy's heads lower
Elsewhere in retail, Macy's stock dropped 5%. The department store retailer gave its business update late Friday after the closing bell, but the weekend didn't make shareholders much more comfortable about Macy's prospects.
Macy's warned it now expects its revenue will come in somewhere in the lower half of its previous guidance for between $8.161 billion and $8.401 billion for the holiday quarter. The retailer did say, though, that earnings would still be within the range of $1.47 to $1.67 per share that it had most recently predicted.
CEO Jeff Gennette explained how the quarter went. Overall, the peak periods of Black Friday and Cyber Monday did well, and the week leading up to the Christmas holiday was ahead of Macy's expectations. Where Macy's lagged, though, was in the periods of non-peak activity, where the company experienced lulls in business that were deeper than it had anticipated. The company also said that its Bloomingdale's and Bluemercury businesses outperformed, suggesting that its namesake stores saw more sluggish activity levels.
Macy's also sees pressure on consumers in 2023, particularly in the first half of the year. That matches up with broader macroeconomic calls for a slowdown or recession, and that will force Macy's to be adept in its inventory planning to ensure it gives shoppers what they want.
