A Look at Retail's 2018 Q2 Earnings

retail-earnings-blog-bannerIt’s halfway through the year, so it’s only natural to take a step back to get a pulse on the retail industry as whole. As the back-to-school season winds down and retailers start to prep for the holiday season during the second half of the year, it’s time to reassess where some of the major players stand.

What better way to do that than through a snapshot of retailer’s earning reports for the second quarter??

Here are some highlights from the most notable reports released this month:

Urban Outfitters

At Urban, things are looking good.

"All three brands delivered double-digit Retail segment 'comp' sales and lower markdown rates to drive these results." - Richard Hayne, CEO of Urban Outfitters

Here’s a quick breakdown of the results:

  • Earnings per share of 84 cents on a 13.7% net-sales gain to $992 million.
  • Same-store sales overall jumped 13%, helped by double-digit growth in digital sales and positive retail store sales.
  • Comps at Free People rose 17%.
  • Urban Outfitters' same-store sales increased 15%.
  • Same-store sales at Anthropologie were up 11%. 

According to analysts: 

“‘The combination of a strengthening fashion cycle and a very healthy consumer backdrop are driving outsize strength in Urban Outfitters‘ fundamentals, a trend which we expect to continue over the medium term,’ they wrote. They also believe the company is well-positioned to benefit from more online spending.”

Kohl’s 

Here a few highlights from Coresight Research: 

  • Revenues were $4.57 billion, up 4.0% year over year.
  • Comps were 3.1%, beating the consensus estimate of 2.6%
  • Comps increased in both stores and the digital channel, driven by an increase in avg. transaction value 
kohls-earnings-coresight

One of the biggest drivers for Kohl’s success and 42 bsp gross margin increase can be attributed to some key management initiatives around inventory, which have led to improvements through:

  • Fewer promotional markdowns
  • Lower inventory levels
  • Reduced customer choice, while increased depth in key items
  • Improved localization – enabling the ability to have the right product, in the right store, at the right time 

Tapestry, Inc. 

Positive results are flowing through for Tapestry, Inc., following some major strategic changes over the past few years (i.e., their shrink to grow strategy, acquisition of Kate Spade and Stuart Weitzman, and company re-brand) as they continue to navigate the new luxury landscape:

  • Coach net sales increased 5% year over year to $1.10 billion.
  • Same-store sales surpassed analysts’ expectations last quarter
  • Net sales of Kate Spade product totaled $312 million, better than analysts’ projections 

Michael Kors 

Similarly, Michael Kors also exceeded expectations this quarter following their Tapestry-esque moves—such as making the brand less accessible, moving out of department stores, reducing promotions, plus the acquisition of Jimmy Choo. Sound familiar?

Here are the biggest takeaways:

  • Revenues were $1.2 billion in the quarter (growing 26% YoY)
  • Earnings per share of $1.32 grew 65% YoY
  • Jimmy Choo revenue exceeded expectations due to strong performance in footwear
  • Michael Kors product more likely to sell at full price rather than at promotion price
  • Digital efforts are strong, reinforcing the brand image
  • Renovated stores adopting the new luxury concept outperformed the rest of the chain

Home Depot 

This home improvement giant is impressing everyone this quarter, whose reported earnings and revenue beat Wall Street estimates. It’s even spurred some optimism on the industry’s outlook for the remainder of the year: 

“Retailers are thriving for a few reasons: the US economy is strong, and U.S. consumers confidence is at its highest level since 2000, lifting retail sales almost 7% year-over-year from June. Retailers have also been responding to Amazon by closing stores, which is improving their bottom line.”Fox Business 

The highlights from Home Depot’s earnings report include the following:   

  • Earnings per share were $3.05 (higher than the $2.84 expected)
  • Revenue hit $30.46 billion (again, higher than the $30.03 billion expected)
  • Same-store sales were up 8% globally vs. an increase of 6.6% expected 

As for looking towards the future, Home Depot is focused on leveling up their delivery platform as a way to dominate the market. In fact, the company stated “it plans to spend $1.2 billion during the next five years to bulk up its supply chain, with the goal of getting online orders to shoppers more quickly.”

Walmart

Walmart also beat analyst expectations during their quarterly earnings release with the strongest reported growth in more than a decade. 

"We're pleased with how customers are responding to the way we're leveraging stores and e-commerce to make shopping faster and more convenient." - Doug McMillon, CEO of Walmart 

Here’s the breakdown of Walmart’s Q2 earnings:

  • Adjusted earnings per share were $1.29 versus the expected $1.22.
  • Revenue was $128.03 billion, which was higher than forecasted $125.97 billion
  • Same-store sales in the U.S. increased 4.5% (expected increase was 2.4%)
  • U.S. online sales climbed 40 percent during the quarter 

The company’s made several moves to compete with Amazon including a new website redesign, a recent acquisition of Indian e-commerce company, Flipkart, a new partnership with Lord & Taylor, and additional investments into exploring delivery options for shoppers (for example, their latest experiment with Waymo, a self-driving chauffeur!).

Macy’s

Based on Q2 earnings, Macy’s is on the struggle bus.

“There are reasons for the apparent slowdown. [Macy's] is still losing market share across a number of categories. Moreover, with the closure of underperforming stores, a natural bounce to comparables is to be expected — especially as some of the trade from shuttered shops finds its way to both other locations and to the digital channel.” - CNBC

There are several factors at play as the 21st century department store tries to figure out its place, from decreased foot traffic at malls to Amazon’s powerful grip on the market. Nonetheless, here’s the high-level take on the numbers from this quarter’s report:

  • Net income was $166 million, or 53 cents a share (compared with $111 million, or 36 cents a share, a year earlier)
  • Revenue fell 1.1 percent to $5.57 billion from a year ago but was ahead of the $5.55 billion analysts were expecting
  • Sales at stores open for at least a year inched up 0.5 percent, again better than an expected decline of 0.9 percent (marking the 3rd consecutive quarter of same-store sales growth) 

Nordstrom

Despite department store uncertainties, Nordstrom’s earnings report also topped analysts’ expectations, ultimately bumping shares by 10%.

Here’s the gist of the report:

  • Net income for the quarter was $162 million at 95 cents a share (versus $110 million the previous year, at 65 cents a share)
  • Revenue rose 7.1% to $4.07 billion (higher than expected $3.96 billion in sales)
  • Sales at stores open for at least 12 months were up 4% overall (way more than the 0.8% increase analysts were expecting)

The remainder of the year is looking bright for Nordstrom, as the retailer continues to reap benefits from its online business and “mitigate some of the pressures [around margins and excess inventory] by keeping a slimmer real estate footprint and testing new concepts, like stores that don’t sell any merchandise.”

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