By Suzanne Kapner and Sarah Nassauer
Retailers, from Walmart Inc. to Nordstrom Inc., are reporting
strong quarterly sales, evidence that the robust U.S. economy is
spurring people to shop and that some chains have found ways to
compete in an increasingly online world.
Buoyed by rising wages and employment as well as tax cuts,
Americans are spending more on products as diverse as jeans,
handbags and wall paint. That has translated to rising sales at not
just at Walmart and Nordstrom, but also Home Depot Inc. and Coach
owner Tapestry Inc., which also reported stronger results this
week.
"Customers tell us that they feel better about the current
health of the U.S. economy as well as their personal finances,"
Walmart Chief Executive Doug McMillon told investors Thursday.
"They're more confident about their employment opportunities."
Walmart said its quarterly sales rose at the fastest rate in
over a decade. Home Depot said paint sales were the strongest in
five years. Nordstrom reported strong sales of kids clothing and
beauty products, even as other department-store chains posted mixed
results.
"The retail apocalypse that everyone had been talking about
really hasn't happened," said Eric Rosenthal, a senior director of
leveraged finance at Fitch Ratings.
Walmart, which gets more than half of its U.S. revenue from
groceries and staples, often tracks its home economy. Gross
domestic product -- the value of all goods and services produced
across the U.S. -- rose 4.1% in the second quarter.
The chain, which booked $128 billion in global quarterly
revenue, has drawn more shoppers to its supercenters as it remodels
stores and lowers prices. It also reported a 40% jump in U.S.
e-commerce sales. Though e-commerce is a sliver of Walmart's
business, the growth showed that the company's heavy investments
are helping the chain hold its ground against Amazon.com Inc.
Walmart shares surged 9.3% to $98.64 on Thursday, giving a boost
to the entire retail sector. While Walmart's shares have lagged
behind, many retail stocks have climbed sharply this year as sales
have stabilized and investors' fears have eased. Nordstrom, which
reported its results after markets closed, jumped 12% to $58.40 in
after-hours trading.
That isn't to say traditional retailers aren't still facing
challenges from Amazon, whose rapid growth and discounting has
squeezed industry profits. Analysts also caution that potential
tariffs could force retailers to raise prices and eventually crimp
demand. The key test of the industry's health -- and shoppers'
appetite to spend -- has yet to come: The holiday quarter drives
the lion's share of the retail business.
The improving economy isn't lifting everyone. J.C. Penney Co.
said Thursday that its sales fell and its loss doubled to $101
million in the second quarter. The chain, which is searching for a
CEO, also lowered its forecasts for the year. Its shares plunged
27% to $1.76.
Retailers that have pulled out of the slump have had a sharp
focus on their core customers and invested in serving them better
by plowing money both into their physical stores and online
operations. They have become smarter about how they manage their
inventory, leaving them with fewer surplus goods and markdowns at
the end of a season. And they have secured more exclusive brands
that can't be found elsewhere.
Investors can be punishing when retailers show even the
slightest sign of weakness. Macy's Inc. shares fell 16% on
Wednesday after the chain reported that same-store sales rose just
0.5%, largely because of the shift of a promotional event to the
first quarter. The chain's profit jumped 50%.
Troubled retailers continue to close locations at a rapid pace.
About 4,375 U.S. stores have shut since the beginning of 2017,
almost double the number of openings, according to Coresight
Research.
And a steady parade of retailers have filed for bankruptcy this
year, including Toys 'R' Us Inc., regional department-store
operator Bon-Ton and teen chain Claire's.
Those moves weeded out weaker competitors and cleared out some
of the overcapacity that has plagued the industry. As a result, the
remaining chains are on more solid footing and are getting a boost
from a stronger economy, analysts say.
Heading into the critical holiday season, the National Retail
Federation raised its 2018 sales forecast to a minimum of 4.5%
growth compared with last year. Previously, the trade group had
expected sales to increase by a range of 3.8% to 4.4%.
As shoppers reduced their spending in recent years, one of the
biggest categories to take a hit was apparel. But that trend is
reversing, with apparel sales up 5.2% from January through July,
compared with the same period a year earlier, and on track to have
their best year since 2011, according to Craig Johnson, president
of the consulting firm Customer Growth Partners.
"The single biggest driver for retail growth is growth in
disposable income, and disposable income is much stronger than it
was five years ago," Mr. Johnson said.
Joanne Charles, of Valley Stream, N.Y., said she is spending the
extra money in her paycheck from the tax cuts. The 50-year-old
event planner said she recently bought four dresses at Macy's and
is splurging on makeup and other nonnecessities.
On Wednesday, Ms. Charles browsed the Macy's in Manhattan with
her daughter Jonelle Carrera, who was shopping for clothes for a
new job that she starts at a nonprofit next week. The 30-year-old
Ms. Carrera said that when she graduated from college in 2010, "it
was hard to find a job, but there are more positions posted
today."
Some of that extra spending has been fueled by borrowing, which
has pushed household debt to record highs, according to Beth Ann
Bovino, chief U.S. economist at S&P Global Ratings. But Ms.
Bovino said that when taken as a percentage of disposable income,
household debt is the lowest it has been since the recession.
"I feel great about the economy," said Sally Wiggins, of New
City, N.Y. While the 57-year-old, who works in hotel sales, said
she is buying more clothes and shoes for her three college-aged
children, her biggest purchase has been a home on the Gulf Coast
that she and her husband are using as a vacation rental. She said
the property has been booked all summer, "so other people must be
feeling good about the economy too."
Write to Suzanne Kapner at Suzanne.Kapner@wsj.com and Sarah
Nassauer at sarah.nassauer@wsj.com
(END) Dow Jones Newswires
August 16, 2018 17:30 ET (21:30 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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