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Monday’s Disappointing Retail Results

Posted: Jun 12, 2009 11:15 AM by James Brumley

Tickers in this Article: BTH, PBY, MW, ZQK

Just a few minutes after the closing bell rang on Monday, investors of retailing stocks were reminded that nothing is a given in this environment. The lesson came in the form of earnings results for four very different companies. Each is a retailer in one way or another, yet none of their product lines overlap. Results were mediocre at best and disappointing at worst.

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Numbers Don't Lie
Blyth Inc (NYSE:BTH) was the only catalog retailer to report after hours on Monday. The fragrance and decorative accessory outfit posted a 14% dip in first-quarter revenue, while the earnings per share of 27 cents was well shy of the expected 47 cents. Men’s Wearhouse Inc's (NYSE:MW) first-quarter per-share profit of 10 cents was nowhere near last year's 19 cents, but it was certainly better than the break-even analysts were expecting. Sales were off by a little more than 5%, but general and administrative expenses were whittled down by 9%.

Auto parts retailer Pep Boys - Manny, Moe & Jack (NYSE:PBY) not only topped estimates, but topped last year's Q1 numbers. The company earned $11.1 million, though $6.2 million of it stemmed from a bond repurchase. Had it not been for the bond sale, the total would have come in at $4.9 million, less than last year's earnings of $5.3 million. Still, even without the boost from the bonds, the per-share income would have beat analyst's estimates of 7 cents.

Outdoor clothier Quiksilver Inc (NYSE:ZQK) swung to a profit in its second fiscal quarter of the year, but then trumped the modestly good news by announcing a $150 million term loan had been accepted from private equity from Rhone on top of securing a $200 million line of credit. The pessimistic forecast for next quarter didn't help investors' moods any either - the company expects double-digit revenue declines again. (To learn more, check out our Industry Handbook: The Retailing Industry.)

Putting the Puzzle Together
So is the glass half empty, or half full? It's not as if investors are unaware of the environment and the challenges all retailers are facing. Surely nobody expects growth. However, a couple of these retailers can't even muster adequate damage control, and it's starting to show.

Take Blyth for instance. The company has fallen short of analyst earnings estimates in four of the last five quarters, which certainly casts doubts on the current full-year forecast of $2.83 per share, and next year's estimate of $2.90. And Quiksilver? When a company that did just under $500 million in sales last year needs $350 million worth of loans and credit lines, things aren’t going well.

Only Men's Wearhouse and Pep Boys managed to make lemonade out of the market’s lemons. But, while two out of four isn't bad, beating a low estimate is a dubious honor for these two retailers.

The Bottom Line
Factoring in how all of these companies are fighting for a shrinking pool of consumer dollars, perhaps we need to start acknowledging that shoppers and discretionary spending aren’t going to spring back to life just because a few economic green shoots are starting to sprout. So to answer the question, the glass is half empty. The consumer may not be dead, but he sure isn’t feeling well. (For more, see Analyzing Retail Stocks.)

By James Brumley

James Brumley is a freelance writer and registered investment advisor. He began his career as a broker with a major Wall Street firm, where fundamentals and long-term holding periods were core strategies. After that, he switched gears completely, becoming an analyst at a short-term trading newsletter that focused on technical analysis. He now manages client money using the best of both philosophies. His company, Bluegrass Portfolio Management, offers investors an opportunity to reap superior returns with minimized risk.

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