Guidance Looks Increasingly Sunny
Based on financial guidance provided in the most recent quarterly public filings of 10 major public retailers, the industry appears to be generally taking a positive view of its near-term prospects. Following is a brief of review of the retailers’ expectations and some general trends that can be observed.
Positive Guidance
- Amazon.com: Q2 fiscal 2010 net sales are expected to be between $6.1 billion and $6.7 billion, or to grow between 31% and 44% compared with second quarter 2009. Operating income is expected to be between $220 million and $320 million, or to grow between 39% and 102% compared with Q2 2009. The Q2 2009 results include the impact of a lawsuit settlement with Toysrus.com LLC for $51 million, substantially all of which was expensed during the quarter.
Amazon.com says this guidance includes approximately $130 million for stock-based compensation and amortization of intangible assets, and it assumes, among other things, that no additional business acquisitions or investments are concluded and that there are no further revisions to stock-based compensation estimates.
- Burger King: Burger King declined to release specific financial targets for the final quarter of its fiscal 2010, but mentioned the expected positive impact of promotional movie tie-ins with summer releases of Iron Man 2 and The Twilight Saga: Eclipse, as well as new value and premium menu items, including several breakfast items and Seattle’s Best coffee. For fiscal 2011, Burger King expects to release an updated breakfast platform this fall.
- CVS: In light of solid Q1 2010 performance and continued confidence about the remainder of the year, CVS raised the mid-point of its earnings per share guidance range for the full year 2010 by $0.03 and now expects adjusted EPS from continuing operations to be in the range of $2.77 - $2.84 and GAAP EPS from continuing operations to be in the range of $2.58 - $2.65.
- Family Dollar: For its Q3 fiscal 2010, Family Dollar expects that comparable sales for the quarter will increase 6% to 8% and that earnings per share will be between $0.71 and $0.76, compared with $0.62 in Q3 fiscal 2009. For the full year, Family Dollar expects that earnings per share will be between $2.48 and $2.58, compared with $2.07 in fiscal 2009.
- The Home Depot: Based on its year-to-date performance, The Home Depot updated its fiscal 2010 guidance and now expects sales to be up approximately 3.5% for the year. Home Depot expects diluted earnings per share from continuing operations as reported to increase by approximately 21% to $1.88 for the year.
- Lowe’s: Compared to its Q2 fiscal 2009, in Q2 fiscal 2010 Lowe’s expects to open approximately four new stores, reflecting square footage growth of approximately 2%, and increase total sales by 5-7%. In addition, Lowe’s expects comparable store sales to increase 2-4% and operating margin to grow about 0.4%.
During fiscal 2010, Lowe’s expects to open 40-45, reflecting total square footage growth of approximately 2%. Total sales are expected to increase 5-7%, comparable store sales to increase 2-4%, and operating margin is expected to rise 0.6%.
Mixed Guidance
- JCPenney: JCPenney expects positive results during its Q2 fiscal 2010 including a comparable store sales increase of 2.5 to 3%, total sales increase of 2 to 2.5%, and unspecified boosts in operating income and margin. However, JCPenney also forecasts a 4.5% increase in SG&A dollar expenses.
- Kroger: Kroger confirmed its identical supermarket sales and earnings guidance for fiscal 2010, saying it continues to expect identical supermarket sales growth, excluding fuel, of 2-3% for the year. Net earnings are expected to range from $1.60 to $1.80 per diluted share for the year.
- Target: During fiscal 2010, Target predicts comparable store sales increases in the range of 2 to 4%, including an expected one-percentage-point lift from its store remodel program. In addition, Target expects total sales to increase by a mid-single-digit percentage.
However, Target expects 2010 retail segment gross margin rate to decline slightly from 2009 as the sales mix impact of faster growth in lower margin categories is expected to more than offset the effect of gross margin rate improvements within categories.
- Wal-Mart: During its fiscal 2011, Wal-mart expects a significant number of store openings in the second and third quarters. In the US, Wal-Mart expects comparable store sales without fuel during its Q2 fiscal 2011 to be -2% to 1%, as compared to a 1.5% decline for the comparable period last year. Its Sam's Club banner expects comparable club sales without fuel during Q2 2011 to be flat, plus or minus 1%, which compares to a 0.6% increase without fuel in the comparable period last year.
For fiscal 2011, Wal-mart also forecasts earnings per share from continuing operations to range from $0.93 to $0.98, as compared to $0.88 per share last year. Earnings guidance assumes that currency exchange rates remain at current levels.
Negative Guidance
- Barnes & Noble: For its Q4 fiscal 2010, Barnes & Noble expects comparable store sales to decline 2-4%, and for the full fiscal year expects them to decline 3%-5%. Barnes & Noble also predicts a Q4 2010 loss per share in the range of 0$.85 to $1.15.
Optimism Continues across Verticals
Out of the 10 retailers profiled by Retailer Daily as offering guidance so far this year, five offered positive guidance, four offered negative guidance, and only one offered guidance that was strictly negative. This compares with results in
December 2009, when out of 13 retailers profiled, six offered positive guidance, five offered mixed guidance, and only two offered strictly or primarily negative guidance. In addition, out of the 12 retailers profiled in
October 2009, eight offered positive guidance, two offered mixed guidance, and two offered strictly or primarily negative guidance.
Positivity Crosses Verticals
In another continuing trend, positive guidance is crossing retail verticals. Retailers in the dollar store, drugstore, food service, home improvement, and online verticals all provided positive guidance. This improvement in a number of category-specific areas, as well as two verticals (online and dollar store) which provide multiple categories, may have contributed to the discount, department store and supermarket categories providing mixed guidance.
Trouble Continues for Books
The continuing negative guidance offered by Barnes & Noble, the world’s largest book retailer, indicates the general difficulty the book vertical is undergoing. Encroachment by online retailers such as Amazon.com, as well as generally declining reading rates, are damaging the book vertical’s performance. However, the early positive performance of e-readers from a number of providers (including Barnes & Noble’s Nook device) suggests the digital channel may offer an opportunity for this vertical to grow.
