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

Revenue reports from Apparel Retailers have not been so disappointing since the big recession.

Companies ranging from Gap Inc. to J.Jill to Canada Goose and Abercrombie & Fitch have delivered disappointing earnings reports over the past few days, casting blame on issues like cool and wet weather, weak traffic in malls, wrong campaigns in stores and superiors product shortage to pull the results. The bad news has sent these stocks, and the broader industry, tumbling. The S&P 500 Retail ETX (XRT) was down almost 2% Friday afternoon, and has fallen almost 1[ads1]3% this month, and set it to pace for the worst month since November 2008, when XRT lost 20.25%.

Earnings, as a group, are down 24% for the first quarter of 2019, according to an analysis by Retail Metrics. The group has so far had increasing earnings since the third quarter of 2017. In the first quarter of 2018, clothing retailers' earnings rose by as much as 26%. The last time the Group's earnings were so poor was the first quarter of 2008 when they fell 40%, Retail Metrics said.

"These are all mall-based retailers who experience traffic problems," said Retail Paints founder, Ken Perkins. "The consumer stops … the sentiment numbers have been very 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.

For example, Walmart and Target both had fresh fiscal income statements for the first quarter, and especially attention to strengths in their clothing companies. They have actually invested in clothes, rolled out more of their own private labels for women's, men's and children's clothing.

"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 flavors are "classic, women's, missile dealers," says Johnson companies such as Chico and Talbots. "The demand for that product is a fraction of what it used to be a generation ago. Women don't dress like that."

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

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

The belief about tariffs has also been a final killing of clothing retail – even though some have not yet met.

The White House still considers a 25% tax on clothing and footwear imported from China. And so many retailers have been forced to address this issue on recent earnings conference calls. Many companies have not yet recognized 25% charges in their profit prospects, which could lead to future earnings deficits if President Donald Trump eventually pulls that trigger.

So late on Thursday, more uncertainty broke out when Trump increased the possibility of putting 5% duties on Mexican imports from June 10. This tariff rate, which could gradually increase to 25% in October, should be aimed at putting pressure on Mexico to help combat illegal immigration.

"Many companies are vulnerable," said CGPs Johnson.

The week to day, shares in Abercrombie are down to almost 30%, while Canada Goose shares have fallen 29.6%, Gap's share is down to nearly 15% and Michael Cross's parent company Capri Holding is down 13.3% . All of these companies reported revenue this week.

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

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