The Bottom Line for Retail Sales and Talbots (TLB), Express (EXPR), and Nordstrom (JWN)
With retails sales driving 70 percent of the economy, it’s no wonder that retail spending and consumer confidence are watched closely for signals to our economic future. Today’s reports give contrasting views.
The Department of Commerce reported a 1.2 percent drop in clothing sales for May, surprising analyst who predicted a sales increase following a bigger-than-expected sales increase in April and a robust first quarter. Discount retailers like Target (NYSE: TGT) and TJMaxx (NYSE: TJX) bucked the trend, suggesting a return to discount spending by consumers.
On the other hand, consumer confidence in June reported by the Thomson Reuters/University of Michigan survey shows consumer confidence reached a high not seen since January 2008.
Let’s look at a group of specialty retailers reporting earnings this week to interpret these findings in light of company results.
Talbots (NYSE: TLB)
Women’s retailer Talbots reported strong first-quarter results and updated their 2010 outlook to $0.75 to $0.83 per share. Sales increased 4.7 percent with significant improvement in gross margin. Income increased $34.1 million. According to the report, the improved figures resulted from a big boost in full-priced sales vs. markdown sales. Last year, the company reported a loss of $0.10 per share.
“We are pleased with our first quarter results,” noted Trudy F. Sullivan, Talbots President and Chief Executive Officer. “Our performance in the quarter, which exceeded our expectations, was driven by top-line sales growth, significant gross margin expansion and continued strong inventory and expense management. With a strong start to 2010, improving fundamentals and a solid balance sheet, we will remain focused on driving sustainable profitable growth of the business over the long term.”
Comments: The news is good but TLB still reported a net loss of $.08 per share for the quarter – much better than the $0.44 loss for the same period last year. Improved management of inventory and debt reduction also helped the quarter’s financial picture, but it took cash to get there and their cash position was negatively affected. The company was buoyed by an overall improvement in spending last quarter but would be vulnerable to a slowdown in spending. The stock is currently trading at less than half their 52-week high and still struggling. It’s still not a turnaround story, although next quarter could surprise.
Express (NASDAQ: EXPR)
Specialty retailer Express priced its initial IPO in May 2010 of 16,000,000 common at $17 per share. The stock is currently selling at around $14.
In its recent earnings report, the company reported net income of $30.6 million on net sales of $426.6 million, a net sales increase of 13.9 percent.
Here’s what President and CEO Michael Weiss, had to say: “Our leadership as a go-to fashion authority for our customer led to a 12 percent increase in comparable store sales, a 57percent increase in e-commerce merchandise sales, and operating income that more than doubled versus the prior year – a great start to 2010.
Comments: EXPR appeals primarily to the young adult market, which could insulate its sales from economic bumps down the road. The company still looks a bit undercapitalized for its expansion plans, but could be an interesting prospect if they can pull if off. Still, the company is profitable, quadrupling EPS to $.040 from its year ago period, when EPS stood at $0.10. An interesting side note — its transformation from a partnership to corporation increased its tax rate from 2 percent to about 41 percent, and the company values its trade name as a $200 million asset.
Nordstrom (NYSE: JWN)
High-end retailer Nordstrom reported a 3.7 increase in same store sales during May compared to May 2009 and a year-to-date total sales increase of 14.2 percent compared to the prior-year period. The company provides its full second-quarter earnings report on August 12.
Nordstrom recently raised its dividend by $0.4 cents to $0.20 per share for stockholders of record on May 28, 2010 on a 43 percent increase in net income for the first quarter.
Comments: As a high-end retailer, Nordstrom looks immune from the effects of economic uncertainties and is delivering solid performance. The dividend announcement in May boosted the stock temporarily; however, the stock fell shortly after in tandem with the market. The stock hit a high of $46 a share in April and shows upside potential. It looks like a sustainable turnaround is in the works, as long as the stock doesn’t get torpedoed by a sinking market.
Disclosure: No positions.