Retail group expects modest sales growth in 2014

story by Kim Souza
ksouza@thecitywire.com

Retailers, despite a slew of layoffs and store closure announcements in recent weeks are expected to see modest sales growth of 4.1% in 2014, up from 3.7% growth last year, according to the National Retail Federation. Online sales are expected to rise between 9% and 12% this year, when compared to 2013.

“Measured improvements in economic growth combined with positive expectations for continued consumer spending will put the retail industry in a relatively good place in 2014,” said NRF President and CEO Matthew Shay. 

He said the looming debt ceiling debates, increased health care costs, and regulatory concerns remain as risks for consumers and retailers. But, he said, the NRF believes economic tides will change in 2014.

“As the industry tackles important issues in 2014, such as immigration and tax reform, we will continue to push our nation’s leaders to support policies that promote growth and create jobs for hardworking Americans,” said Shay.

A number of factors contributed to NRF’s rosy outlook. They factor in early estimates of GDP growth of 2.6%, a faster pace than the 1.9% rate for 2013. They also expect to labor market to add 185,000 jobs per month and continued improvement in the housing sector.

Rich Yamarone, chief economist with Bloomberg Brief, told The City Wire this week that he expects a tough year for retailers. He said the middle class continues to be hit with higher taxes, more expensive insurance costs and this winter they are shelling out a lot more just to keep warm.

“I see optimistic projections for GDP growth being made, but I have to ask myself where  this growth is going to come from. I don’t see it,” he said.

Wal-Mart Stores Inc., the nation’s largest retailer posting around $465 billion in annual sales last year, has already lowered its earnings expectations for fiscal 2014. The downward guidance was based on weaker-than expected first quarter numbers, which include the holiday shopping season that can be as much as 30% of total annual sales industrywide.

The retail behemoth shaved 26 cents off its fourth quarter earnings related to store closings in Brazil and China and Sam’s Club layoffs and management restructuring. This 26-cent reduction is on top of an 11-cent charge to the $1.50 to $1.60 per share earnings expected by the retailer in the fourth quarter.

Wal-Mart sales were impacted more than company officials expected from reductions in federal food stamp payments. Bill Simon, CEO of Walmart U.S., told reporters on multiple occasions that the retailer did not expect any material impact from the cuts. But the company issued an earnings warning on Jan. 31.

“Despite a holiday season that delivered positive comps, two factors contributed to lower comp sales performance for the 14-week period for Walmart U.S.,” Charles Holley, chief financial officer noted in the release last week (Jan. 31). “First, the sales impact from the reduction in SNAP (the U.S. government Supplemental Nutrition Assistance Program) benefits that went into effect Nov. 1 is greater than we expected. And, second, eight named winter storms resulted in store closures that impacted traffic throughout the quarter. Sam’s Club was also impacted by the weather throughout the quarter.”

Even with the lower earnings warning given by Wal-Mart, Wall Street analysts said the news was something it could live with.

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“Despite the lower guidance, we view Wal-Mart’s January quarter performance as better than other retailers, and remain constructive on shares due to their “safe haven” status (dividend yield and excellent operations), as well as its attractive valuation, helped by the January stock sale (especially retail) this year,” notes Budd Bugatch, analyst with Raymond James & Associates.

He lowered his fourth quarter estimate to $1.59 from $1.64 per share, also shaving a nickel off the annual earnings prediction as well, to $5.10 from $5.15 following the company’s release.

Bugatch expects Wal-Mart will post $474.93 billion in fiscal 2014 sales for the year ended Jan. 31. His fiscal 2015 sales revenue estimate for Wal-Mart is $492.13 billion, an increase of 4.25% from the prior year. This is a little more optimistic than the NRF sales growth estimate for the same time period.

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