Retail Sector Gets Slammed (SHLD, KSS, M, JCP, BONT, DDS, SKS)

The S&P Retail Index is down -2% in the late morning today, considerably below the overall DJIA decline of -1.2%, and it’s not entirely clear what’s causing the drop. Sears Holdings Corp. (NASDAQ: SHLD) leads the decline, down about -7.6% after dropping as low as off -9.4% earlier. Kohl’s Corp. (NYSE: KSS) is down about -3.7% and J.C. Penney Co. Inc. (NYSE: JCP) is down -3.6%. Bonton Stores Inc. (NASDAQ: BONT) are down -2%, Dillard’s Inc. (NYSE: DDS) is down -2.8% and Saks Inc. (NYSE: SKS) is down -3.9%.

Macy’s reported same-store sales growth of 4.2% for May, better than the consensus estimate of 4%, but 42% growth in online sales raises suspicions of not-so-strong sales in the bricks-and-mortar stores.

The International Council of Shopping Centers and Goldman Sachs Retail Chain Store Sales Index dropped 0.5% for the week ended last Saturday, causing the ICSC to lower its estimate of May sales growth from 3% to 2%.

Research firm Retail Metrics pegs May same-store sales for growth of just 1.8% in May citing falling consumer confidence, lowered guidance indicating soft May sales, difficult comparisons to last year’s 5.5% growth in May, and softer first week sales due to a later Mother’s Day this year.

Given the overall soft outlook for May, it’s probably no surprise that Sears is taking the brunt of the punishment today. The probable impact of the company’s planned spin-offs of its Canadian stores and its Hometown and Outlet stores, while beneficial to shareholders in the short term, will leave Sears with a lot of real estate and not much prospect of sales growth.

And today’s announcement that Gores is walking away from its planned acquisition of Pep Boys doesn’t improve confidence in the retail sector either. The thing to keep in mind about this walk-away, though, is that Pep Boys has been trailing its competitors for some time. The retail automotive group is doing well — Pep Boys lacked the management to compete.

Whatever the reason, Sears shares are down -$4.52 at $52.98 in a 52-week range of $28.89-$85.90.

Paul Ausick