Retail Earnings Season
Later this week, the major retailers will start reporting their first quarter earnings, and it should be interesting. In the last week, retail stocks have taken it on the chin, after seeing a nice run-up over the prior six weeks. After signaling that investors think that a recovery is in the works, is the market now signaling that investors are not really sure that retailers have been able to get the margins they need, that retailers will have to continue buying their sales at the expense of their earnings?
This is of no small concern to smaller retailers. Many of the small retailers I've spoken to over the past several months have expressed the concern, and the frustration, that they are struggling to get their customers to once again pay full retail.
Many small retailers felt this recession earlier than their corporate brethren. (I've spoken to several small retailers, on the other hand, who were more resilient, who didn't experience any difficulties until things went off the cliff last September.) It seems that specialty retail, which tends to be non-promotional to start with, first felt the downturn, followed by larger middle market retailers beginning in early 2008. (The WalMart's, Dollar General's and Costco's of the world actually have done quite well throughout the recession.)
My suspicion is that the recovery will follow that pattern in reverse; the larger middle market retailers leading the specialty sector out of this. If that's the case, it's going to be very interesting to see what companies like Macy's and J.C. Penney report. Their sales, and sales of similar retailers, have been slowly getting better (actually, less worse) and it's going to be very instructive whether those sales have been earned fair and square, or whether they've had to be bought with the markdown pen.