3 Must-Know Trends to Watch in This Week’s Retail Earnings Reports

It’s a big earnings week for retailers.

Tomorrow, department store chains Kohl’s Inc. and J.C. Penney Inc. are due to post their sales and profits for the first quarter, while Wednesday will see the release of reports for three companies: VF Corp., Target Corp. and Shoe Carnival Inc. On Thursday, Deckers Outdoor Corp. is expected to release its financial results, and capping off Friday will be both Foot Locker Inc. and Hibbett Sports Inc.

Here are the trends to watch ahead of this week’s earnings.

US-China Trade War

JCPenney, Shoe Carnival, Deckers Brands and Foot Locker were among the more than 170 shoe companies that have penned a letter urging President Donald Trump to remove footwear from his latest tranche of tariffs.

The memo, which was released today by the Footwear Distributors & Retailers of America, came a week after the Office of the U.S. Trade Representative released a list of Chinese goods, including shoes, that could be saddled with a proposed 25% hike in duties. (Current duty rates on shoes average 11% and go up to 67.5%.) It outlined the impact that the new import tax would have on businesses and American shoppers.

In a letter dated Sept. 6, JCPenney counsel David M. Spooner wrote, “While new proposed tariffs on imports may be aimed at China, it is JCPenney’s customers who will be forced to pay more at checkout for items they have always been able to purchase at JCPenney at a tremendous value. The imposition of tariffs on these consumer goods would constitute a regressive tax increase on hardworking American families.”

Shoe Carnival CEO Cliff Sifford also noted that shoe retailers are already burdened with higher duties compared with other product categories. “The shoe industry in the U.S. pays over $3 billion in tariffs on all imported shoes,” he told FN. “No other category of apparel comes close to this amount. If shoes are added [to the Trump administration’s list], it will increase these tariffs by $3.5 billion.”

According to the FDRA, each family would have to spend an extra $131.93 on footwear annually should the threatened tariff increase take effect. It added that consumers overall would pay $7 billion in additional costs every year for shoes.

Strategic Investments

Within the past year and a half, Foot Locker has boosted its strategic stakes in other companies as it seeks continued relevance with younger customers. The retailer announced in late February that it had put $12.5 million toward children’s apparel company Rockets of Awesome — only a few weeks after its $100 million bet in GOAT Group, as well as a month following its $2 million strategic investment in Pensole Inc. and $3 million Series Seed II investment in children’s lifestyle brand Super Heroic. Last January, it also contributed $15 million in Series A funding toward Los Angeles-based women’s luxury activewear maker Carbon38.

Similarly, Hibbett Sports has made its own set of investments, entering into an agreement in October to acquire specialty retailer City Gear. The company said it snapped up 136 City Gear stores in the fourth quarter, when it saw sales increase nearly 15% to $306 million, blowing past analysts’ expectations of $283 million.

Target has also put in efforts to revamp its image, remodeling more than 300 stores last year with plans to complete another 300 overhauls in 2019. Since rolling out its multiyear growth strategy in 2018, the big-box chain has seen the continued success of its in-house brands such as A New Day and Project 62; ramped up its “buy online, pick up in store” service; and launched same-day delivery through its Shipt acquisition.

High-Profile Bankruptcies

In February, Payless ShoeSource became the latest casualty in a string of retailers that have gone bankrupt due to the rise of e-commerce and shifting consumer demands. While it is taking a few months for Payless to cycle through its liquidation sales — during which the company is dramatically slashing prices to offload remaining merchandise — experts suggest firms like Shoe Carnival, Famous Footwear, Walmart and Target will eventually be able to snap up leftover market share from the bankrupt firm.  (As typically is the case in liquidations, in the short term, consumers are likely flock to Payless’ sales — creating a brief headwind for some competitors.)

JCPenney — which has grappled with waning relevance, C-suite turnover and a share price that plunged below $2 — could look to capitalize on the challenges of Sears Holdings Corp., a fellow anchor department store and one of its biggest competitors. Amid its attempted turnaround plan, the struggling JCPenney said in February that it would close 18 full-line stores this year (including the three locations announced in January) as well as nine ancillary home and furniture outposts to help align “its brick-and-mortar presence with its omnichannel network.”

Watch FN’s interview with these top shoe players.

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