How A Data Breach, The Dollar And Offensive Merchandise Are All To Blame For Lukewarm Retail Numbers

After Monday's closing bell, Urban Outfitters, Inc. (NASDAQ: URBN) showed they are still struggling to attract shoppers at its namesake stores. Earnings per share for the third quarter came in at a lousy $0.35, $0.10 lower than the Estimize consensus, showing a decline of 26 percent YoY.

Record revenues for the quarter also slightly missed the consensus, reporting $814.5M vs. expectations for $823.3M. Growth at two of the retailer's brands helped to offset some of the weakness, with same store sales increasing 15 percent at Free People and 2 percent at Anthropologie, but falling 7 percent at Urban Outfitters.

The poor showing came as a result of lower initial merchandise markup followed by higher markdowns; recent criticism regarding offensive merchandise could partially be to blame. Despite the disappointing results, CEO is Richard Hayne is encouraged by “positive signs as shown by strong results at the brand's direct-to-consumer channel.” The direct-to-consumer business typically includes internet and catalog sales.

This morning we saw results from two more retailers, TJX Companies Inc (NYSE: TJX) and The Home Depot, Inc. (NYSE: HD). TJX Companies, the parent company of TJ Maxx, Home Goods and Marshalls, reported Q3 EPS of $0.85, just slightly below the Estimize consensus of $0.86, an increase of 13 percent YoY. Revenues of $7.37B also missed estimates by $113M, but increased 6 percent from Q3 2013.

While the movement of foreign currency exchange rates had a neutral impact on sales growth in Q3, the company is lowering fourth quarter guidance to reflect a negative impact . Fourth quarter EPS is now expected to be in a range of $0.86 - $0.90; “this guidance assumes an expected $0.02 negative impact from foreign currency exchange rates,”… “as well as a $0.02 per share negative impact due to a combination of additional expenses and investments for the future.”

Despite a large data breach experienced during the third quarter, Home Depot was still able to put up decent results due to strength across all geographies.  The home improvement retailer reported Q3 EPS of $1.15 meeting the Estimize consensus and showing YoY profit growth of 21 percent.

Revenues of $20.52B beat expectations of $20.47B and grew 5 percent from the year-ago quarter, while same store sales increased 5.2 percent. With that said, the company is still trying to determine the total cost of the consumer data breach. Pre-tax expenses for the quarter totaled $28M, and the company estimates that total breach-related costs could be as high as $34M and will negatively impact fourth-quarter results. Home Depot reaffirmed its 2014 EPS guidance of approximately $4.54 a share, with sales expected to grow about 4.8 percent for the year.

How Are We Doing?

Expectations for S&P 500 earnings growth for the third quarter stand at 11.7 percent. Revenues are anticipated to come in with 4.9 percent growth. All 10 sectors are anticipated to post positive YoY growth on both the earnings and revenue front.

Leaders

Earnings:

Consumer Discretionary (14.3 percent). Notable industry: Internet Retailers (25.3 percent)

Energy (14.3 percent). Notable industry: Oil, Gas and Consumable Fuels (14.6 percent)

Health Care (13.9 percent). Notable industry: Biotechnology (45.1 percent)

Revenues:

Health Care (12.1 percent). Notable industry: Biotech (39.0 percent).

Information Technology (7.1 percent). Notable industry: Software (15.7 percent)

Laggards

Earnings:

Utilities (2.8 percent). Notable industry: Gas Utilities (-8.3 percent).

Telecommunication Services (1.4 percent): All five companies are within Diversified Telecom Services. Only Verizon posted YoY growth.

Revenues:

Energy (1.2 percent). Notable industry: Oil, Gas and Consumable Fuels (­0.5 percent).

Materials (2.4 percent). Notable industry: Paper & Forest Products (­-18.3 percent).

Beat/Miss/Match

Earnings: With 93 percent of the S&P 500 reporting thus far, 56 percent have beaten the Estimize consensus, 34 percent have missed and 10 percent have met. This is compared to Wall Street estimates, of which 71 percent of companies have beat on the bottom­-line, 21 percent have missed and 8 percent have met.

Revenue: 52 percent have beaten the Estimize consensus, 48 percent have missed, and 0 percent have met. For revenues, 58 percent of companies have beat the Wall Street estimate, while 42 percent have missed.