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Retail earnings: theft at 'historical highs', credit card delinquencies rise as sticky brands top estimates

Last updated: 09:40 25 Aug 2023, First published: 14:18 24 Aug 2023

What this week’s earnings tell us about the state of the retail sector

Retail earnings: theft and credit delinquencies on the rise as sticky brands top Street estimates

Retail theft pressures margins at Dick’s, Dollar Tree

Shares of Dick's Sporting Goods (NYSE:DKS) plunged nearly 20% earlier this week as the company’s quarterly results fell short of Wall Street expectations, with the retailer citing sluggish ‘outdoors’ sales and rising theft for its disappointing performance.

The retailer also downgraded its full-year outlook. Read more

Rising “shrink,” being inventory lost due to damage or theft, plagued other retailers during the second quarter.

Dollar Tree, Inc. (NASDAQ:DLTR) also tightened its outlook as elevated theft and business transformation initiatives put pressure on its margins, sending its stock more than 10% lower on Thursday. Read more

Last week, the CEOs of both Target Corporation (NYSE:TGT) and Walmart Inc (NYSE:WMT) also told investors on their respective earnings calls that retail crime continued to threaten their profits and employee and customer safety. Read more

Nordstrom seeing theft at 'historical highs'

Department store chain Nordstrom, Inc. (NYSE:JWN) said losses from theft were at “historical highs” but that they had accounted for this in their forecasts.

“We have not seen continuing rising of shrinkage that has exceeded what we planned,” CEO Erik Nordstrom told investors following the release of the company’s 2Q results after the market close on Thursday.

Earlier this month, the retailer was the victim of a high-profile theft at its Topanga store in Los Angeles where a swarm of people stole $300,000 worth of merchandise.

For 2Q, Nordstrom reported better-than-expected sales and earnings, with earnings per share of $0.84 and revenue of $3.77 billion, a decline of 8.3% year-on-year but above the expected $3.67 billion. Read more

Credit card delinquencies rise

Macy's, Inc. (NYSE:M) reported a 36% year-over-year drop in credit card revenue for 2Q with the retailer having to write off balances that cash-strapped cardholders were unable to pay off.

This sent the company’s shares about 14% lower with investors concerned about the rapid drop in credit card revenue, which made up about half of Macy’s operating profits in 2022.

"While we have seen an increase in revenues as interest rates have risen, that has been more than offset by higher bad debt assumptions and write-offs," Macy's CFO Adrian Mitchell told investors on the company’s earnings call.

"These bad debt assumptions and write-offs are the result of rising delinquencies, which leads to higher net credit losses over time and contributes to increased bad debt within the portfolio."

The department store chain posted stronger-than-expected revenue and profit for the second quarter but issued a cautious outlook given economic uncertainty. Read more

Curbed consumer spending hits profits

Unsurprisingly, many retail brands saw their profits suffer in 2Q as consumers cut back on spending amid still-high inflation.

Off-price clothing retailer Burlington Stores Inc. (NYSE:BURL) warned of “significant pressure" on its core customer base. Read more

Consumers also pulled back on spending for their furry friends. Petco saw its supplies and companion animal segment decline by 9.4% year-over-year, reporting a total loss of US$14.6 million for 2Q. Read more

Foot Locker trips up Nike and Adidas

Foot Locker, Inc. (NYSE:FL) shares plummeted more than 30% on Wednesday after the footwear company reported a drop in sales, lowered its full-year guidance, and paused its dividend.

The retailer’s margins were impacted by increased promotional activity, including higher markdowns, occupancy deleverage, and higher shrinkage. Read more

As a leading U.S. outlet for Nike and Adidas, Foot Locker’s results sent shares of both apparel and footwear brands lower, down about 4.4% and 5% respectively on Wednesday. Read more

Sticky brands outperform

Clothing retailers with strong followings and higher price tags thrived during the second quarter despite the challenging macroeconomic conditions.

Abercrombie & Fitch (NYSE:ANF) comfortably topped Wall Street estimates with earnings per share of $1.10 on revenue of $935.3 million compared to forecasts of earnings per share of $0.17 on revenue of $844 million.

The company’s CEO Fran Horowitz attributed the overperformance to “strong customer receptivity” across its brands, particularly Abercrombie’s namesake stores, where sales rose 23% year-over-year.

The brand, which filled the wardrobes of teenagers in the 1990s and 2000s, has seen a resurgence in popularity in the last year or so due to the success of its rebranding initiatives. Read more

Earlier this week, another youth-focused clothing retailer Urban Outfitters, Inc. (NASDAQ:URBN) reported record second-quarter sales which topped estimates along with an earnings beat. Read more

High-end fashion retailer Guess Inc (NYSE:GES) also easily topped Street expectations for the quarter when it reported after the bell on Thursday, sending its stock nearly 20% higher.

The iconic jeans brand posted earnings per share of $0.72, above the consensus expectations of $0.39 and marking a 74% improvement year-over-year. Read more

Contact the author at emily.jarvie@proactiveinvestors.com

Follow her on Twitter @emilyjjarvie

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