Department Store Inventories Decline in Response to Higher Oil Prices and Consumer Fears of Spending



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CHICAGO – NOVEMBER 21: Nordstrom signage is visible in its store on November 21, 2003 in Chicago. Nordstrom, Inc. reported net income of $ 45.5 million, or $ 0.33 per diluted share, for the third quarter of 2003, ended November 1, 2003. For the same period last year net earnings and diluted earnings per share were $ 18.4 million and $ 0.14. , respectively. (Photo by Tim Boyle / Getty Images)

Tim Boyle | Getty Images News | Getty Images

Shares of major department store companies slid Tuesday amid concerns over weak consumer spending. Nordstrom led the pack with a drop of nearly 10%. Dillard's shares fell by 7%, Macy's by nearly 5% and Kohl's by 4%.

But stocks have also seen big gains recently. Nordstrom is up 27% in one month and Kohl's has gained about 12%. Macy's has gone up 9% so far in September.

Investors may also be worried that gas prices will continue to rise after the attack on oil facilities in Saudi Arabia and seek to recover their profits by selling shares before that date.

In a note released Tuesday by Cleveland Research, Nordstrom sales in the third quarter so far "are below expectations of consensus and are slightly better than those of the previous quarter." Net sales for the third quarter would drop 3.5% from consensus of 1.0%, analyst Rusty Wilson has modeled. It also expects a 2.6% decline in sales in 2019, which represents a larger drop than the consensus estimate of a 1.9% decline and the forecast of the company of a decline of 2%.

Rising gas prices could also mean that consumers will spend less on discretionary items such as clothing. Analysts estimate that consumers could pay on average 15 to 20 cents more per gallon of unleaded gasoline by the end of the month. The price of gasoline in the United States jumped 3 cents a gallon overnight Tuesday, according to AAA. An article in Barron on Tuesday also said oil prices were reducing retail inventories.

The adverse weather conditions of the month of October also pose a risk to clothing retailers, according to a note by J.P. Morgan to customers. Last year, retailers benefited from the coldest temperatures of the month of October for 16 years. But if the weather is nice, as expected, retailers might have a hard time selling fall clothing and seasonal items, Boss said in a research note. This could encourage companies to make comparisons of unfavorable sales with last year.

Redbook Research also said Tuesday morning that retail sales for the first two weeks of September fell 0.9% from August but rose 5.4% from a year ago. other. Analysts said the US retail sales gains in July were inflated by Amazon Prime Day, but they also felt the weaker August figures were confused by the promotion. Preliminary data from Redbook could indicate that August sales figures were not a fluke and that consumer spending is down.

Department stores have already struggled to increase sales recently and could be one of the first cases where consumers will miss out on tight budgets. Macy's latest earnings report fell well short of analysts' expectations, and sales in Kohl's last quarter also missed the target. Nordstrom achieved weak sales below expectations, but exceeded Wall Street's earnings guidance. Barneys New York filed for bankruptcy in August.

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