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Retail Spotlight: Amazon Effect Spoils Earnings Season for (Some) Retailers

Retail Spotlight: Amazon Effect Spoils Earnings Season for (Some) Retailers

If Amazon has been hovering over Walmart like a dark cloud for some time, February 20 may be remembered as the day it began to rain. Walmart stock suffered its largest price drop ever after a bruising earnings call in which analysts prodded CEO Doug McMillon for details about Walmart’s underwhelming online sales – and came away wanting.

Walmart actually beat analysts’ revenue projections for the fourth quarter, but even that sunny note could not stop the stock from falling a precipitous 10 percent by mid-day. Investors hoping for continued rapacious growth in Walmart’s e-commerce business–which topped 50 percent the previous three quarters–were left disappointed when the fourth-quarter growth figure came in at 24 percent. A slowdown was expected as Walmart continued to absorb online retailer Jet, but CEO McMillon also confessed to “operational challenges” that stunted online growth.

The slide in Walmart’s stock price reflects a popular narrative that Walmart is losing its battle for customers with Amazon. It’s a hard narrative to dispute – and it’s an issue that goes way beyond Walmart. The specter of Amazon’s inevitable domination of the retail sector is so powerful that investors have been afraid to back an array of retailers around the world. They call it the “Amazon effect.”

It all begs the question: how much should we take from Walmart’s no good very bad earnings call? Is it a sign of things to come for retail as a whole, or are the effects isolated to one company, in one quarter? A non-exhaustive look around the sector won’t give us all the answers, but it does suggest some reason for optimism.

Certainly, it has been rough going for some. Nordstrom tumbled nearly 4 percent after it missed on earnings expectations. Kohl’s dropped 5 percent after reporting earnings, and J.C. Penney announced the elimination of 360 jobs as it, too, whiffed on earnings expectations.

In contrast, though, Macy’s turned in a quarter so healthy it had CNN proclaiming “there is still room for traditional stores in the mall” – something that Amazon has put in doubt. More evidence came from Dillard’s, which blew past expectations and soared up 29 percent from three months ago.  Many retailers showed progress in e-commerce, with Macy’s notching double-digit growth for the 34th quarter in a row. Even Nordstrom boasted strong online results, and said it’s ready to turn a profit in cyberspace. Meanwhile, although Kohl’s fell, it posted a huge earnings beat that has some seeing value in the stock.

If they’re right, the “Amazon effect” may not be terrifying after all, but rather a discount that lets investors pick up good retailers on the cheap.

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