Will the back-to-school season help?
In the previous parts of this series, we discussed the National Retail Federation’s expectations for back-to-school season sales in 2016 and the importance of this season for department stores. The back-to-school season comes in the fiscal third quarter for department stores. In this part, we’ll discuss what analysts expect from department stores’ third quarter sales.
Pressure on the top line
Department stores’ sales have been under pressure due to rising competition from online retailers like Amazon (AMZN) and off-price retailers like TJX Companies (TJX). Macy’s (M), Nordstrom (JWN), and Kohl’s (KSS) reported declines of 3.9%, 1.4%, and 2%, respectively, in their fiscal 2Q16 sales on a year-over-year basis. Fiscal 2Q16 ended on July 30, 2016. JCPenney’s (JCP) turnaround efforts and focus on its growth areas, like the Sephora beauty business, helped the company deliver sales growth of 1.5% in 2Q16.
3Q16 sales expectations
Despite the upbeat NRF estimates for 2016 back-to-school sales, analysts have mixed expectations for department stores’ sales growth. Currently, Macy’s 3Q16 sales are expected to fall by 3.6% to $5.7 billion. Macy’s sales have fallen in the last six consecutive quarters. The company cited various reasons for weakness in its sales including tepid consumer spending.
Analysts expect Nordstrom’s 3Q16 sales to rise by 4.8% to $3.5 billion. The weakness in Nordstrom’s full-line stores is expected to be offset by its off-price and online businesses. Analysts expect JCPenney’s strategic initiatives to help it deliver sales growth of 2.8% in 3Q16. Kohl’s 3Q16 sales are expected to fall by 1.8% to $4.4 billion.
Together, Macy’s, Nordstrom, JCPenney, and Kohl’s account for 1% of the iShares U.S. Consumer Services ETF (IYC).
We’ll discuss analysts’ expectations for department store stocks in the next part of this series.