Abercrombie’s CFO told an investors conference this morning that the second quarter would “not be good.” Yesterday, Talbots and a retailer named G3 Apparel went a step further and said the second quarter looked awful. Newell Rubbermaid has said the same thing. May sales at The Limited, Target and Kohl’s were crap. And the Gap is bracing for problems all year.
Now some of this newsflow is obviously company specific and the investment banks will tell you that high gasoline prices are complicating matters in a big way. But the truth of the matter is the consumer looks gassed. And that has me wondering if Retailers are suddenly having trouble sleeping as they put the finishing touches on their holiday buys.
The bet that planners have to make is as follows: either Q2 is stuck in a transitory soft patch and holiday will be fine. Or this string of bad macro and micro news portends a sluggish back-half and perhaps even a double dip. If planners bet on the former and they are right, they look like heroes. But if they go big on Holiday and all this Q2 news proves to be a harbinger of things to come, then they blow this year and dig themselves a new hole to begin 2012.
My gut tells me some will decide to play it safe and adjust their Holiday plans accordingly. Better to give up a little upside than risk a real debacle in December when years and careers are on the line. Accordingly, it wouldn’t surprise me to see many “adjust” guidance during the 2Q earnings season as CEOs and CFOs begin tipping their bets to the street. There hasn’t been much of this to date but that is because companies are still operating under their pre-May expectations. Give it a couple of months and I think you will see an uptick in warnings, albeit trims and not full-on buzzcuts.
In some respects, retailers may have caught a break as they got some good intel just in time to avoid a disaster. Had some of this weakness showed up in July and August, it would have been too late to dial back on Christmas. But coming in May and June, when plans are being locked down and crap is being bought, the dark clouds have given planners an opportunity to dodge a bullet. Whether they choose to capitalize on the opportunity is another story but my sense is most will decide to shave their orders and avoid the knockout.
Regardless of how companies decide to wager, it seems that 2Q conference calls will be more interesting than normal this year. Because one way or another, retailers will be forced to tip their Christmas bets. For those staying in the hand, all I can say is good luck.
