As the second quarter earnings season heats up, all eyes are on casual clothing giant Gap Inc. (GPS), whose shares saw a slight uptick in pre-market trading. Today’s session is expected to reveal not only Gap’s performance but also an update from its high-end competitor, Nordstrom (JWN). The retail sector has seen a mixed bag of results in the July quarter, with companies like Walmart exceeding expectations and predicting healthy near-term profits, while others at the top end of the pricing spectrum have reported a slowdown in consumer demand as we approach the fall months.
Gap, the parent company of popular brands such as Old Navy and Banana Republic, is predicted to report adjusted earnings of 9 cents per share for its fiscal second quarter, marking a significant decline of around 50% from the same period last year. However, the firm’s group revenues are expected to fare slightly better, with a predicted drop of 7.5% to $3.57 billion, reflecting the impact of aggressive discounting strategies implemented earlier this year to clear inventory. Meanwhile, Nordstrom’s bottom line is also anticipated to take a hit, with a projection of 45 cents per share, a fall of 44% from last year, on revenues of $3.65 billion.
Gap Inc. and Nordstrom Prepare for Q2 Earnings Amid Mixed Retail Landscape
A Dip in Consumer Demand
As the retail sector takes stock of its performance over the July quarter, results have been mixed. While value-focused companies such as Walmart have exceeded Street’s estimates and predicted solid near-term gains, high-end retailers have observed a decrease in consumer demand as we move into the autumn months.
Projected Earnings for Gap Inc. and Nordstrom
Analysts are estimating a decline in earnings for both Gap Inc. and Nordstrom. Gap Inc., which also operates the Old Navy and Banana Republic brands, is expected to report adjusted earnings of 9 cents per share for the three months ending in July. This represents a drop of about 50% from the same period last year.
Group revenues for Gap Inc. are expected to fare slightly better, with a predicted decrease of 7.5% to $3.57 billion. This likely reflects the retailer’s steep discounting strategy to move inventory accumulated earlier in the year.
Likewise, Nordstrom is projected to experience a significant drop in earnings, with a bottom line forecast of 45 cents per share, a 44% decrease from last year. The retailer’s revenues are expected to come in at $3.65 billion.
The Issue of Theft
Both retailers are also expected to address the issue of theft, an issue that recently impacted big box rival Target. Last week, Target CEO Brian Cornell highlighted the cost of organized crime, which could potentially shave off as much as $500 million from its full-year profits.
Pre-Market Trading Trends
In pre-market trading, Gap shares were marked 0.83% higher, pointing towards an opening bell price of $9.73 each. Nordstrom shares also saw a slight increase, nudging 0.5% higher to $17.68 each.
The mixed retail earnings over the July quarter indicate a complex landscape for retailers, with consumer demand and theft emerging as significant challenges. As high-end retailers like Nordstrom and value-focused brands like Gap Inc. prepare to announce their Q2 earnings, the focus will be on how these companies are strategizing to navigate these challenges. Moreover, the pre-market trading trends suggest cautious optimism from investors, a sentiment that will be tested once the companies unveil their earnings reports.