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Clothing retail earnings have not been so bad since the recession



A customer permeates jeans at a Gap store in San Francisco.

David Paul Morris | Bloomberg | Getty Images

The revenue reports for clothing retailers have not been so disappointing since the big recession.

Businesses from Gap Inc. to J.Jill for Canada Goose and Abercrombie & Fitch delivered disappointing earnings reports in recent days, casting blame on issues like cool and wet weather, weak shopping malls, the wrong campaigns in the stores, and overall product failures to draw on the results. The bad news has sent these stocks and the broad industry tumbling. The S&P 500 Retail ETX (XRT) was down almost 2% Friday afternoon and has fallen almost 1

3% this month and set it to the worst month since November 2008, when XRT lost 20.25%.

earnings, as a group, decreased by 24% in the first quarter of 2019, according to an analysis by Retail Metrics. The group has so far been increasing earnings since the third quarter of 2017. In the first quarter of 2018, the clothing retail's retail earnings increased by 26%. The last time the Group's earnings were so poor was the first quarter of 2008, when they fell 40%, Retail Metrics said.

"This is all shopping malls that are about shopping centers that experience traffic problems," said Retail Metric's founder Ken Perkins. "The consumer stops … sentiment numbers have been really high," he added. The problems arise when some companies do not invest in ways to drive customers to their stores and websites while others are, he said.

Walmart and Target both had, for example, optimistic first-quarter income statements, which focused on strengths in their clothing companies. They have actually invested in clothes and rolled out more of their own private labels for women, men's and children's clothes.

"It's not that people buy fewer clothes," said CGP president Craig Johnson. But they don't go in the same place anymore.

The biggest victims of changing tastes are the "classic, women's, missile dealers," Johnson said – companies like Chico's and Talbots. "The demand for that product is a fraction of what it used to be a generation ago. Women are not similarly dressing."

As fewer women flocked to their stores to buy patterned dresses, Ascena Retail Group recently announced it plans to shut down its Dressbarn business completely and close more than 600 places in the process. Earlier this week, Ascena's shares traded as low as 93 cents.

And although more people are going to stop shopping destinations like Walmart and Target to buy clothes, they still buy off-price chains like TJ Maxx and Ross Stores, which buy more directly from brands like Zara, Nike and Lululemon, from Amazon or from online platforms like Stitch Fix and Rent the Runway.

The threat of customs has also been a recent move on clothing stores – even though some have not yet hit.

The White House is still considering a 25% tax on clothing and footwear imported from China. And so many retail managers have been forced to solve this problem on recent earnings conference calls. Many companies have not yet recognized 25% tariffs in their profit prospects, which could lead to future earnings hardships if President Donald Trump eventually pulled the trigger.

So late on Thursday, more uncertainty increased as Trump raised the possibility of putting 5% duty on imports from Mexico on 10 June. This tax rate, which could gradually increase to 25% in October, would aim to put pressure on Mexico to help fight illegal immigration.

"Many companies are vulnerable," says CGP Johnson.

Week to date, Abercrombie shares are down nearly 30%, while Canada Goose shares have fallen 29.6%, Gap's shares are down to nearly 15% and Michael Cross's parent company Capri Holding is down 13.3%. All these companies reported earnings this week.

– CNBCs Gina Francolla and John Schoen contributed to this reporting.


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