A customer is browsing through jeans at a Gap store in San Francisco.
David Paul Morris | Bloomberg | Getty Images
Clothing retailers' earnings reports have been less disappointing since the Great Recession.
Companies from Gap Inc. to J. Jill to Canada Goose and Abercrombie & Fitch have delivered disappointing earnings reports in recent days, blamed on issues such as cold and wet weather, poor shopping mall traffic, fake retail promotions and general product defects. which affect the results. The bad news has driven these stocks and the broader industry to the abyss. The S & P 500 Retail ETX (XRT) fell almost 2% on Friday afternoon, dropping nearly 1
Following an analysis by Retail Metrics, net income for the first quarter of 2019 fell by 24%. The Group has achieved earnings growth since the third quarter of 2017. In the first quarter of 2018, clothing retailers grew by a whopping 26%. The last time the group's earnings were so bad was the first quarter of 2008, when they fell 40%, Retail Metrics.
"These are all mall-based retailers that experience traffic issues," said Ken Perkins, founder of Retail Metrics. "The consumer thinks … the sentiment was really high," he added. The problems arise when certain companies do not invest in opportunities to lead customers to their businesses and websites while others do, he said.
Walmart and Target, for example, had good first quarter business reports, pointing out the strengths of their apparel business in particular. They actually invested in clothing and introduced more of their own brands of women's, men's and children's clothing.
"It's not that people buy less clothes," said CGP President Craig Johnson. But they do not go to the same places anymore.
The biggest victims of flavors that are changing are the "classic retail outlets for women," according to Johnson companies such as Chico's and Talbots. "Demand for this product is a fraction of what it was a generation ago, women do not dress like that."
As fewer women flock to stores to buy patterned dresses, the Ascena Retail Group has recently announced plans to completely discontinue the dressbar business, closing more than 600 locations. At the beginning of this week Ascenas shares were trading at 93 cents.
And while more and more people are heading to one-stop shopping destinations such as Walmart and Target to buy clothes, they still buy in low-cost chains like TJ Maxx and Ross Stores, which are directly linked to brands like Zara, Nike and Lululemon, Shop at Amazon or on online platforms like Stitch Fix and Rent the Runway though some have not taken.
The White House is still considering a 25% tax on clothes and shoes imported from China. And so many executives in the retail sector had to deal with this issue in recent telephone conferences. Many companies have not yet included the 25% tariff in their earnings outlook, which could lead to future earnings disappointments if President Donald Trump finally presses this trigger. From June 10, 5% tariffs on Mexican imports. This tariff, which could be gradually raised to 25% by October, is designed to put pressure on Mexico to stem illegal immigration.
"Many companies are vulnerable," Johnson told CGP.
To date, Abercrombie shares have fallen nearly 30%, while Canada Goose shares have fallen 29.6%, Gap shares have fallen by nearly 15% and Michael Kors' parent company Capri shares Holdings fell by 13.3%. All of these companies reported profits this week.
– CNBCs Gina Francolla and John Schoen contributed to this coverage.