Low Expectations for Black Friday 2013

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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