The Only Certainty Is Uncertainty As Retailers Halt Earnings Guidance

There is one certainty when it comes to investing: Wall Street hates uncertainty.

You’ve seen that principle at work on days when markets plunged 10 percent. Among the key drivers of that plunge: uncertainty over COVID-19, the disease caused by the coronavirus; its spread and lethality; and perhaps most of all, the economic impact.

Wall Street also loves numbers, and investors love numbers that publicly traded companies offer along key metrics, such as (and not limited to) revenues, margins, earnings and same-store sales.

Guidance matters, in other words, and gauging how companies and their stocks are, and will, fare comes in part by mulling the guidance given on quarterly conference calls, in earnings reports, in Securities and Exchange Commission (SEC) filings and at conferences.

Of course, companies hedge their bets a bit when it comes to guidance, offering a broad range for many data points. Looking at, making assumptions about, and modeling the future allows analysts and investors to make (somewhat) educated guesses about valuation, and whether it’s time to buy or sell stocks, bonds or any number of other types of holdings.

Generally Right Or Precisely Wrong

As one investing maxim states: Better to be generally right than precisely wrong.

But what happens when companies don’t even want to hazard the “generally right” part — when they pull previously issued guidance and don’t offer up new parameters?

The names have been accumulating in the “not issuing guidance” category. In recent days, Target suspended its guidance for the quarter and full year. Macy’s said earlier in the month that it will halt its dividend and would not update guidance. Furniture firm Herman Miller withdrew its forward-looking estimates this week.

These are but a smattering of firms giving a nod toward the uncertainty of the current climate, even where the news has been, well, decidedly good (at least for sales) as consumers stay home and make home their new place to live, work, shop and stay safe.

By withdrawing guidance, these companies, and the other firms across a range of verticals that will undoubtedly withdraw guidance in the weeks ahead, are indicating that there’s not all that much visibility into consumer demand going forward.

That may portend a bit of bumpiness for retailers like Target. While consumers have been busy grabbing all manner of items from virtual and brick-and-mortar shelves, perhaps not surprisingly, sales have popped. This week, it was reported that Target’s same-store sales are up 20 percent in March.

But as The Wall Street Journal noted, the shift across the retail landscape has had a bit of mixed effect. The company has been spending more on wages, on cleaning stores and on keeping stores stocked. At the same time, consumers have been clamoring to buy lower margin items, such as food and cleaning items, while shunning apparel and other relatively higher margin goods. So, earnings can get squeezed.

Store closures have become the lay of the land, and as a result, guidance necessarily becomes a murky endeavor when foot traffic is non-existent.

Macy’s, for example, said in a statement that it will review “all non-essential” expenses.

The “retail environment has deteriorated rapidly since we last provided guidance… we are now operating in an environment with a high degree of uncertainty,” CEO Jeff Gennette said in the statement.

Nordstrom said it is closing its stores for two weeks and withdrew its own guidance, while noting a slowdown in consumer demand. Not knowing when the consumer comes back, or when the stores will open to let them back in spells out that it could be a while till guidance comes back again.

It may be the case that Target, Walmart and other firms that sell groceries and staples are seeing a pull-forward of demand, a hoarding effect that boosts results temporarily but borrows from the future.

Those big-box firms have been able to keep consumers engaged because, of course, so much else has been shuttered. But what comes next? At least some analysts have said firms such as Neiman Marcus, which shuttered a number of stores, may be particularly vulnerable to the impact of COVID-19. Bloomberg reported the company is mulling bankruptcy in a bid to cut debt and keep operations running.

As noted in this space recently, discounting has come to luxury brands. Other examples include Net-a-Porter (10 percent off), Saks Fifth Avenue (10 percent off), Neiman Marcus (discounting by 20 percent) and Moda Operandi (slashing prices by 20 percent).

Retailers across the board have been inundating inboxes with gift cards — the online kind. Just check your inbox. We’ll bet you’ve got loads of offers from, well, everyone, from Saks to Target to Gap to any site you’ve visited, asking you to come back and make a purchase.

That’s leading to uncertainty too, over whether consumers will click all the way through to buy buttons (and snap up dresses and men’s ties, formal shoes or watches) as we all go to the kitchen with laptops to work in our robes.