March’s 8.7% retail sales decline was bad, but GlobalData Retail expects April to be “hideous” since the month won’t have the benefit of even a couple of weeks of store purchase activity.
“The whole month looks like it will be a write-off for retail, with stores remaining closed for the duration,” wrote Neil Saunders, managing director at GlobalData Retail.
“Panic buying has now largely subsided and will not lift sales to the same degree. However, the biggest downsides are the dramatic rise in unemployment and the rapid decline in consumer confidence. Taken together, these dynamics will reduce the money people have to spend and how willing they are to spend it.”
The most recent data showed about 16.8 million Americans filed for unemployment over a three-week span.
The March retail sales decline was a record, with clothing stores halved and department stores down 20%.
“This unheard of level of decline underlines how the consumer has quickly deprioritized nonessential spending,” Saunders said. “It is also a factor of the relatively quick drop-off in mall traffic, where most apparel stores are located, as people felt unsafe visiting enclosed environments.”
Online sales won’t offset losses from in-store sales, the note said.
J.C. Penney Co. Inc. JCP, -10.32% stock plummeted 28% in Wednesday trading after reports that the troubled department store retailer is exploring the options for a bankruptcy filing.
Reuters reports that even with access to cash the company is concerned about sales once stores reopen and upcoming debt. Reuters notes that no decisions have been made.
Cowen analysis suggests that J.C. Penney has about seven months of liquidity should stores remain closed. However, before the COVID-19 outbreak, J.C. Penney was in the midst of a slow turnaround that had yet to generate a significant sales or earnings boost.
Macy’s Inc. M, -10.30% has also been hit particularly hard by the COVID-19 pandemic, with about four months of liquidity available, according to Cowen analysis.
That retailer has also been hurt by out-of-stocks in its e-commerce channel, according to JPMorgan.
“Traditional department stores, apparel retailers, and mom-and-pop shops of all types are struggling to survive, and bankruptcies will spike despite the federal assistance programs,” said Dr. Kerstin Braun, president of Stenn Group, an international provider of trade finance.
All of the consumer electronics retailer’s domestic stores are closed to customers with the exception of the curbside service, and about 40 stores are shuttered entirely.
Online sales have soared 250% with half of those orders using the curbside service, according to a statement from Corie Barry, chief executive of Best Buy.
But sales for the nine weeks ending April 4 fell about 5%. In the eight days ending March 20, sales jumped 25% as customers purchased work-from-home-related items and items with which to freeze food. Then sales slumped 30% from March 21.
Best Buy has drawn down all of its $1.25 billion revolving credit facility and has suspended share repurchases.
“The giants – Amazon, Walmart, Target, and Costco – will come out of this crisis unscathed, not only because they sell essential goods, but also because their sheer size and investment in online order and delivery allows them to out-survive smaller competitors,” Dr. Stenn said.
UBS analysts are also confident about the prospects for Skechers USA Inc. SKX, -5.33% They forecast that the company will benefit from the continued athleisure trend, which is shifting from “performance” items used for sports and workouts to streetwear.
UBS expects 6.5% global growth in the athleisure category, with gains in developing markets.
“COVID-19 will significantly affect Skechers’ FY20 earnings in our view,” UBS said. “However, we think the company is an under-appreciated global growth stock, even as the world’s third largest footwear brand. Thus, we expect for earnings to gradually rebound and exceed FY19 levels.”
Analysts expect fiscal 2020 sales to fall 15% to $4.4 billion. Skechers 2019 sales were $5.22 billion.
UBS maintained its buy rating on Skechers stock with a $32 price target, down from $50. UBS cut price targets for a number of brands, including Ralph Lauren Corp. RL, -4.26% (to $75 from $123), Coach parent Tapestry Inc. TPR, -6.63% (to $14 from $28), Under Armour Inc. UA, -2.81% UAA, -2.03% to $10 from $21) and children’s brand Carter’s Inc. CRI, -2.33% (to $69 from $101). UBS rates all of those stocks neutral.
Originally Published on MarketWatch
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