With U.S. retail sales out today, broker Jefferies has chosen a propitious time to preview earnings season for the retail sector.
U.S. retail sales were a shade stronger than expected, rising a seasonally adjusted 0.6% in July, versus expectations of a 0.5% increase.
Excluding car sales, retail sales rose 0.4%, in line with economists’ expectations.
The growth comes as a relief after June’s 0.1% decline, which capped a quarter that was disappointing to many, Jefferies included.
The broker said it started the second quarter with reasonable expectations of being able to raise earnings estimates for retailers as spending picked up, but the improvement failed to materialize.
“On a relative basis, we think dollar stores and home improvement will show the healthiest gains. Aside from favorable macro forces, these also happen to be businesses that are less disrupted by the web competitors,” the broker noted.
The price target for Dollar General (NYSE:DG) is nudged up to US$89 from US$89 previously, with Jefferies moving its full-year earnings per share (EPS) forecast up a penny to US$3.92.
The discount retailer is rated a ‘buy’, whereas competitor Dollar Tree (NASDAQ:DLTR) merits no more than a ‘hold’ recommendation from Jefferies.
The broker’s target price stays at US$75, a little below the current market price, while the full-year EPS forecast is shaved to US$3.39 from US$3.41 previously.
Another retailer getting a slight earnings downgrade is Lowe’s (NYSE:LOW), where Jefferies has shave a penny off its full-year forecast and is now going for EPS of US$3.25.
After issuing disappointing numbers, department store Kohl’s (NYSE:KSS) was the biggest blue-chip faller at the start of market trading, shedding almost 8%.
In the quarter ended 1 August, Kohl’s reported a profit of US$130mln, worth 66 cents a share, down from US$232mln (US$1.13) a year earlier.
Chief executive Kevin Mansell attributed an underwhelming sales performance to the shift in sales in tax-free states from July into August.