Last week proved a boon for Macy's, Dillard's, and Nordstrom, as all three reported earnings that were in excess of what analysts estimated. For others, though, the situation was quite the opposite. Namely, Kohl's (NYSE:KSS) and Wal-Mart Stores (NYSE:WMT) both failed to impress Mr. Market as they fell short of expectations. On top of this, another retailer, Sears Holdings (NASDAQOTH:SHLDQ), reports this week with a lot at stake.
Kohl's was smashed
Of the major retailers that reported last week, Kohl's received the worst investor reaction. The $11.7 billion retailer saw a significant shortfall on both its top and bottom lines, which caused its shares to fall more than 8% to close at $53.55.
Revenue for the quarter fell 1% from $4.49 billion in the previous year's quarter to $4.44 billion this year. The primary driver behind this decline was a 1.6% decrease in comparable-store sales, partially offset by the addition of three locations. If this wasn't bad enough, investors were surprised with the company reporting a 17.7% decrease in net income, from $215 million last year to $177 million this year.
According to the earnings release, the fall in net income relative to revenue was due to costs increasing as a percentage of sales (mostly led by an increase in the company's cost of goods sold), depreciation, and amortization. The drastic decline in profitability meant earnings per share coming in at $0.81, a far cry from the $0.86 Mr. Market expected and an even greater distance from the $0.91 the company reported in the same period last year.
Wal-Mart experienced lackluster results
For Wal-Mart, last week was less than ideal, but it was still better than it was for Kohl's. During its most recent fiscal quarter, the $257 billion retailer reported revenue that fell short of Mr. Market's expectations but that exceeded analyst expectations.
Revenue for the quarter rose 1.5% compared to the same quarter a year ago, hitting $115.69 billion. For a company that had 2012 revenue of $469.2 billion, it's impressive to see such top line growth. This fell short of what Mr. Market expected, however, as the market believed that sales would grow by 2.6% from $113.93 billion last year to $116.84 billion. In all fairness, if you remove foreign currency fluctuations then the company's revenue came a little closer to expectations at $116.2 billion, but it was still off the mark.
On a positive note, the company exceeded analyst expectations in its earnings per share after it reported $1.14, a penny higher than anticipated and a 6.5% increase from the $1.07 it reported during the same quarter last year. This improvement was due in part to increased revenue and slightly improved margins, though another major contributor was a decrease in the company's shares outstanding.
Will Sears be a winner or a dud?
Despite these two underperformers last week, there were more winners in retail than losers. Unfortunately, this doesn't say a lot about what might happen this week with Sears, but it does suggest that analysts have been overly pessimistic in their expectations of brick-and-mortar businesses.
For the quarter ending Oct. 31, the $6.7 billion retailer is expecting to post a net loss of $3.13 per share. If this comes to fruition, then it will mark a 57.3% increase from the net loss of $1.99 per share the company reported in the same quarter last year.
On top of a decline in its bottom line, Mr. Market also expects Sears to fall short on its top line. Revenue for the quarter is expected to come in at $8.39 billion, 5.3% lower than the $8.86 billion the company reported during the same quarter a year ago. This is expected to contribute to lower annual revenue of $36.55 billion, a decline of 8.3% from the $39.85 billion it reported last year.
Based on this data alone, it appears as though the situation for Sears will be worse than last year. However, this isn't the first year that the company has faced trouble. Over the past five fiscal years, the retailer has seen its revenue fall annually, declining a total of 14.8% as customers became disenfranchised with the value proposition the company offered. Likewise, net income fell from $53 million in 2009 to -$930 million last year.
Clearly, the situation of both Kohl's and Wal-Mart can be looked back on with the benefit of foresight being 20/20. Using the data presented by management during each company's earnings release, investors should have a better understanding of the risks and rewards that each of these companies offers. Sears, on the other hand, is another story entirely. Though investors can benefit from the information put out by analysts, it won't be until the company reports earnings on Thursday that market participants will have a better understanding of what the future holds. Although there are signs that a turnaround is possible, I plan on playing it safe and sitting by the sidelines.