“Retail is not dead,” Telsey Advisory Group said.
One day before second-quarter earnings season kicks into gear in earnest, it’s clear investors agree. The latest quarterly results are expected to outshine first quarter disappointments that were hurt by lousy weather. The SPDR S&P Retail ETF has risen 13 percent year to date to a record high, more than double the return of the S&P 500 Index.
Stores are doing business, “and not just at promotional prices,” Telsey analysts wrote after a recent back-to-school mall tour. The observation may bode well for sales, and even help to provide an offset to any gross margin pressure stemming from higher costs, including freight, which was widely pointed out in last quarter’s reports.
Shoppers may be attracted by customer engagement efforts put forth by various brands in the face of easy Amazon click-shopping.
Buyers are “on the hunt for experiential change in physical retail,” Telsey says, pointing out that American Eagle offers the free use of washers and dryers to customers with a student ID, while Athleta and Banana Republic shoppers can charge their smartphones while browsing the racks.
Bloomberg Intelligence shares Telsey Advisory’s bullish sentiment on retail. Analysts led by Poonam Goyal expect “more positive” quarterly results compared to the first quarter.
In a note last week, Goyal and analyst Chen Grazutis cited First Data’s comparable store sales gain of 3 percent for the four weeks ended July 27 as evidence of “enduring momentum.” Strength was probably aided by “warmer weather, clearance sales and fresh back-to-school fashions.” The First Data report also showed transactions growth of 3.2 percent, while ticket size was 0.2 percent lower.
Notable retailers to report earnings this week include Tapestry Inc., Macy’s Inc., Home Depot Inc., J.C. Penney Co., and Nordstrom Inc. Walmart Inc., while technically not a retail index component given its Consumer Staples sector membership, is largely considered one of the retail industry’s proxy reporters. Its quarterly results are due pre-market on Aug. 16.