February 4, 2016 / 1:47 PM / 4 years ago

Weak sales at Kohl's, Ralph Lauren spark selloff in retailers

(Reuters) - Ralph Lauren Corp (RL.N) and Kohl’s Corp (KSS.N) warned of a tough year ahead after reporting disappointing holiday-quarter sales on Thursday, leading investors to dump their stocks and dragging down shares of several other retailers.

A Kohl's Department store is shown in Encinitas, California October 28, 2014. Kohl's reported their earnings on Tuesday. REUTERS/Mike Blake

Kohl’s shares plunged as much as 20 percent to a near seven-year low of $41.06. Ralph Lauren’s stock fell 18 percent, touching a more than five year-low of $94.02.

Kohl’s said it discounted heavily in the quarter, hurting margins, as it worked to clear inventories, after a slow start to the winter season led people to spend less on sweaters, gloves and coats.

Ralph Lauren said it would aggressively try to clear inventories in the March quarter.

“The worry is that the winter stock is not being sold even with deep discounts,” said Neil Saunders, chief executive at retail research firm Conlumino. “Unfortunately, it looks like retailers will have to write-off their winter inventory.”

Shares of Macy’s Inc (M.N), Target (TGT.N) and J.C. Penney Co Inc (JCP.N) were down more than 3 percent as investors raised concerns about the lingering effects of a weak holiday season.

November and December are crucial for many retailers as the two months can account for anywhere between 20-40 percent of annual sales.

“Earnings (at retailers) remain weak and troublesome,” Retail Metrics analyst Ken Perkins said.

“Macroeconomic/retail environment has deteriorated a bit over the past month as oil has plunged, a strong dollar hurts manufacturing and tourist spending, retail sales were soft over the holidays and global stock markets have tumbled.”

The National Retail Federation, the world’s largest retail trade association, said last month that retail sales during the holiday season in the United States increased by a less-than-expected 3 percent.

Sales at established Kohl’s stores rose 0.4 percent in its fourth quarter, missing the average analysts’ expectation for a 1.2 percent rise. Ralph Lauren posted a 7 percent drop, steeper than the expected 2.7 percent decline.

“Inventory levels will be high at year end, which will likely create more margin pressure in the first quarter due to very warm temperatures in February,” said Sterne Agee CRT analyst Charles Grom, who covers Kohl’s.

Kohl’s said it estimated 2015 earnings of $3.95-$4.00 per share. It had earlier expected earnings to be at the low end of its forecast of $4.40-$4.60 per share.

Ralph Lauren said it expects revenue to decline in 2016. It had earlier said it expected sales in the year to be flat.

Reporting by Yashaswini Swamynathan, Ramkumar Iyer and Siddharth Cavale in Bengaluru; Editing by Maju Samuel and Sayantani Ghosh

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