Sector Snap: Chilly Spring Rough on Retailers

A cool start to the year may have chilled sales for retailers, who roll out their monthly sales numbers Thursday.

When traffic slows due to inclement weather or other reasons, cutting prices may help bring in consumers, but it doesn’t help a company’s bottom line.

“The western U.S., the only region with favorable weather in March, turned unfavorable in April, and the lone bright spot weather-wise was a moderate late-April warming of the Northeast, which could be ‘too little, too late,’” says Ike Boruchow, an analyst at Sterne Agee.

Of the 27 companies that Sterne Agee follows, more than half ratcheted up promotions compared with the April of the previous year. Discounting increased every week throughout the month. Those who cut deeper this year, according to Sterne Agee, were

American Eagle Outfitters Inc., Abercrombie & Fitch Co., and Gap Inc., which also owns Old Navy and Banana Republic.

The Gap is expected to post a 2.2 percent increase in comparable-store revenue.

Retailers will also be releasing their profit outlooks for the rest of the year when they post April sales results. They begin posting first-quarter financial results later this month.

It’s important to keep in mind, however, that Wall Street has been talking about the weather and its effect on retailers for months. Expectations are fairly low.

A number of factors, given the lowered expectations, may lead to some positive surprises, but Brean Capital warns that investors will be keying in on what’s to come.

“Most of our universe will achieve already materially lowered 1Q guidance, especially on the bottom line, driven by lower cotton prices and a material emphasis on reducing inventory overhang and driving better pricing integrity; rock bottom expectations also will be a nice positive,” Eric Beder and Danielle McCoy said in a research report Monday. “That said, we do not expect the Street to be as forgiving in terms of missed forward guidance.”

Analysts will be closely watching J.C. Penney Co., when it reports earnings this month. The department store chain has seen sales drop 25 percent for the year ended Feb. 3, after a turnaround strategy implemented by its former CEO Ron Johnson backfired. Penney is expected to post a drop of 13.7 percent for the quarter at stores open at least a year.

Gap’s shares fell 42 cents, to $38.39, in late morning trading. J.C. Penney’s shares are down 15 cents to $17.11.