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Retail Earnings Roundup: Winners, Losers, and Key Insights

The U.S. retail sector has wrapped up a volatile earnings season, with investors sharply rewarding companies that exceeded expectations and penalizing those that fell short. 

The market's fluctuations have been described as “absolutely wild.” This season has underscored the critical importance of individual company execution in a post-pandemic landscape where consumer trends have normalized.

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Stock Picking Becomes Crucial
This earnings season has highlighted the paramount importance of precise stock selection. Execution by individual companies has become the key differentiator, with clear winners and losers emerging. Abercrombie & Fitch's (ANF) shares soared 24% following their earnings report, driven by efficient cost management, while American Eagle Outfitters saw an 8% drop due to higher-than-expected expenses. Despite both companies reporting year-over-year revenue increases, investors favored Abercrombie’s superior execution.

Gap and Abercrombie Lead with Strong Earnings
Gap (GPS) delivered a standout performance, hiking its full-year guidance after smashing earnings expectations for its fiscal first quarter. The retailer reported EPS of 41 cents, significantly higher than the 1 cent reported a year ago, with net sales increasing 3% to $3.4 billion. Comparable store sales rose 4%. Gap’s stock surged 28.6% in heavy trading, clearing a crucial buy point.

Abercrombie & Fitch also impressed, exceeding expectations with EPS of $2.14, up 449% year-over-year, and revenue growing 22% to $1.02 billion. Same-store sales jumped 21%. The company raised its full-year revenue outlook to a 10% increase, up from the prior 4%-6% target. Abercrombie’s shares soared 24.3% before experiencing some volatility.

Consumers Are Resilient, But Selective
Despite concerns that inflation, higher interest rates, and reduced fiscal stimulus might curb consumer spending, many retailers managed to grow sales or meet revenue expectations. Macy’s (M) CEO Tony Spring noted that while consumer spending is under pressure, shoppers remain discerning and selective. Brands like Abercrombie, Deckers Outdoor’s Hoka (DECK), and Dick’s Sporting Goods (DKS), which have strong momentum, continued to engage consumers, reflected in their post-earnings stock gains.

Deckers Outdoor Steps Up
Deckers Outdoor, known for its Hoka and Ugg brands, has delivered expansive top and bottom-line growth, continuing to outpace long-established footwear giants like Nike (NKE), Adidas, and Under Armour (UAA). Hoka and Ugg led Deckers’ accelerating revenue growth of 21.2% year-over-year to $959.76 million in Q4. The company’s direct-to-consumer (DTC) demand and wholesale growth both saw significant improvements, with DTC sales up 21% and wholesale revenue up 21.4% year-over-year.

Moving forward, Deckers anticipates sustained momentum for its core brands, projecting around 20% year-over-year sales growth for Hoka and mid-single-digit growth for Ugg. Despite a modest miss on EPS projections for FY25 due to a normalized promotional environment, Deckers’ strategic execution positions it strongly against its rivals.

Value Retailers Lead the Pack
The economic environment has driven consumers to prioritize value, benefiting big-box retailers such as Walmart (WMT) and Costco Wholesale (COST). Off-price retailers like Burlington Stores, TJX Cos., and Ross Stores also performed exceptionally well, offering a "treasure hunt" experience that resonates with cost-conscious shoppers. Analysts have highlighted that the sector’s strength is partly due to a greater supply of branded goods and a stronger value proposition compared to pandemic levels.

Discretionary Spending Remains Weak
High-ticket discretionary purchases have suffered, impacting sales growth for retailers such as Lowe’s, Home Depot, Best Buy (BBY), and Target (TGT). However, there are signs of improvement as inflation stabilizes. Costco’s CFO noted that members are beginning to return to discretionary spending, suggesting potential recovery in this segment.

Best Buy Reflects Cautious Consumer Sentiment
Best Buy reported a 6.1% decline in comparable sales, reflecting broader consumer caution. Despite reaffirming its full-year guidance, the company’s sales fell short of estimates, particularly in appliances, entertainment, and consumer electronics. CEO Corie Barry noted that consumers are prioritizing essentials over discretionary purchases due to higher prices for necessities like food, fuel, and lodging.

However, Barry highlighted that innovation in AI products, such as those from Microsoft and new Google Chromebooks, could drive consumer interest and spending. These higher-priced items may attract customers, while older products at discounted prices offer value-based entry points.

Turnaround Strategies Yield Results
Investors have rewarded retailers that successfully executed turnaround strategies. Gap’s shares surged 29% after reporting better-than-expected earnings and positive same-store sales across its brands. Analysts described Gap’s performance as evidence of a textbook retail recovery. Macy’s and Foot Locker (FL) also showed improvements, leading to slight boosts in their shares post-earnings.

Abercrombie & Fitch exemplifies a successful turnaround, with its revamped merchandising and store experience driving a more than 440% increase in its share price over the past year. However, industry experts caution that even successful retailers must remain vigilant and adaptable as market conditions and consumer preferences continue to evolve.

The recent earnings season underscores the need for strategic execution and adaptability in the retail sector. As consumer behavior continues to evolve post-pandemic, retailers must navigate a complex landscape, focusing on efficient cost management, value proposition, and innovative offerings to succeed. This season has demonstrated that success in the retail industry now hinges on individual company performance rather than broad trends.

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