High-end retailers clouded by spending concern
NEW YORK (MarketWatch) -- Upscale retailers
All three stocks were downgraded to neutral from buy by Citi's analyst Deborah Weinswig. She cut her target price on Nordstrom to $52 from $63; to $37 from $49 on Macy's; and to $11 from $14 on Saks. She also cut her June same-store sales estimates and 2012 profit forecasts for all three companies.
At issue, high-end shoppers, who represent about 50% of spending in the U.S., are most likely to be hurt by stock market volatility, the analyst said, adding comparable sales at the high-end department stores have missed estimates and slowed by as much as 4 percentage points since April. She also expects sales could fall short in June.
While the S&P 500 has risen almost 6% this year, it dropped 5.9% the past three months amid concerns about euro-zone financial crisis and the global pace of economic recovery. High-income shoppers own about 90% of U.S. equities, the analyst said.
"We are incrementally more concerned about the health of the consumer, given the softening U.S. economic outlook and declining consumer confidence," she said. "We believe high-end spending is slowing, and we see the weakness in women's designer apparel as a more systemic issue that will likely weigh on (same-store sales) growth ahead."
Pointing to slowing economic growth ahead, Citi Economic Surprise Index began to enter negative territory in April while the Economic Cycle Research Institute Weekly Leading Index has been declining since early April, Weinswig said. Meanwhile, high-end consumer confidence slowed to 80.7 in May from 86.0 in April.
Shares of Macy's (M) , which also owns the upscale Bloomingdale's chain, fell 3.7% in late afternoon trading. Nordstrom (JWN) was down 2.3%. Saks (SKS) declined 3.7%. Polo
Sluggish tourism travel from Europe also is expected to hurt sales ahead for the high-end retailers, she said.
Tiffany has said it saw a drop in sales, especially to European tourists, at its New York flagship store, which accounts for about 8% of Tiffany's total company sales. Macy's and Saks also have exposure in tourist markets such as New York. See related story on Tiffany.
Weinswig lowered her June comparable sales estimate for Macy's to a gain of 1% to 3% from an increase of as much as 5% previously.
She also said Macy's could slow the pace of its share repurchases against an uncertain economic outlook. She cut her share buyback estimate to $750 million from $1 billion. She also lowered her 2012 per-share profit estimate on Macy's to $3.25 a share from $3.40.
For Saks, the analyst reduced her June sales estimate to a gain of 3% to 5%, from an increase of as much as 6%.
As Saks began a 5-year technology investment program, she also expects the company may spend beyond its guidance for $30 million of capital expenditures, hurting its progress toward its operating margin goal and limiting its share repurchase.
She cut her 2012 earnings estimate on Saks to 40 cents a share from 45 cents.
With Nordstrom, she lowered her June sales estimates to an increase of 2% to 4% from as much as 5% previously, to reflect a slowdown at the high-end, weakness in women's designer apparel, and lean inventory levels during the company's half-yearly sales for men and women.
As Nordstrom "has kept its foot on the gas with respect to investments in technology to fuel multichannel growth," the analyst said that could also weigh on near-term profit growth.
She reduced her 2012 profit estimate on Nordstrom to $3.30 a share from $3.40.
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