Low Expectations for Black Friday 2013

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The results are in, and U.S. retailers fared quite well in the third quarter. The problem is, few of them are as optimistic about the fourth quarter – and that could make for an unusually weak Black Friday.
Target (NYSE: TGT) and Abercrombie & Fitch (NYSE: ANF) were the latest big-name retailers to report strong third-quarter earnings but underwhelming forward guidance. Those essentially mirrored reports earlier this week from Best Buy (NYSE: BBY), L Brands (NYSE: LTD) and Staples (NASDAQ: SPLS).
The low expectations drove most retail stocks down this week. It also further tempers the already modest Black Friday sales expectations. Economists are anticipating a 3.1% year-over-year increase in Black Friday sales – a far cry from the 13% jump last year or the 16% increase the year before that.
Here’s a breakdown of some of the aforementioned reports:

  • Target: Cut earnings guidance for the year to a range of $4.59 to $4.69. The previous range was $4.70 to $4.90.
  • Abercrombie & Fitch: Full-year outlook held at $1.40-$1.50 per share, below analyst expectations of $1.55 per share. The company lost $15.6 million in the third quarter, or 20 cents per share – down from a profit of $1.02 per share in the third quarter a year ago.
  • Best Buy: Beat third-quarter expectations, but issued guidance about Black Friday price-cutting weighing on margins. My colleague, Tyler Laundon, argues that BBY’s price-cutting strategy this holiday season is a sound strategy that will have a profound long-term impact despite some short-term pain.
  • L Brands: Another retailer that beat third-quarter earnings estimates but fell short in guidance. The company expects same-store sales to decline in November.
  • Staples: Lowered 2013 sales guidance, and margins are in rapid decline.

Not all of this week’s retail reports have been doom and gloom. After all, the third-quarter earnings beats are a positive sign.
But the pessimistic outlook for the current quarter grant further credence to the rather muted expectations for Black Friday 2013.

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