No More Free Pass, Retail

 | May 21, 2014 | 9:08 AM EDT
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Take a deep breath as retail continues to unravel

It was too good to last. Last year the retail index increased more than 35% as most retailers got a free pass looking into a better 2014. Well, as you can see, the free pass has been ripped up. First-quarter earnings are showing that the consumer may be struggling.

Here is today's retail playbook

American Eagle Outfitters (AEO) highlights a rinse-wash-and-repeat cycle.  AEO missed comparable sales guidance again, coming in at down 10%. Gross margins continue to get hit, declining 420 basis points. Yes, it is a déjà vu. I said the same thing the last several quarters.

Guidance for the second quarter is as dark as a moody teenager, with comps expected down high-single digits. Let me remind you that AEO is the best of the lot. Just wait for Abercrombie & Fitch (ANF) earnings (unless you consider that cost cutting more important than sales).

Lowe's (LOW) continues to underperform Home Depot (HD). Yesterday, Home Depot reported a 3.3% U.S. same-store sales number and today LOW delivered a 0.9% result. The execution spread continues here. Sure, you can blame it on Lowe's' large exposure to outdoor patio/garden or you can just look at the historical spread with Home Depot (and continue to own HD).  I would also note Lowe's was supposed to be a first-half story? Now it is a second-half story. You decide.

Target (TGT) lowered the boom today and reduced guidance to $3.60-3.90 a share from the previous $3.38-4.15. I called out last quarter as what I call LOL guidance. There is no point in a slow bleed. Better to clear the guidance decks at the start of the year. The good news is that TGT reported that comps declined 0.3%. It could have been much worse. With the recent departure of the CEO, the market was filled with conspiracy theories on how bad the number would be. That is enough to send this stock higher for today.



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