Sentiment Analysis: Tax Refunds OK, But Retail Pressures Remain

This week’s IRS data showed similar trends vs last week, with similar refund sizes compared to last year while volumes remain slightly lower. Although the tax refund data has yet to turn positive, it no longer has the look of a crushing headwind for the specialty retail sector.  

If not tax refunds, then what really drove the wave of disappointing earnings this week?

Please note: This in no way represents investment advice. All transcript text provided by S&P Global Market Intelligence.

Tax Refund Fog Lifts, Specialty Retail Secular Pressures Remain

IRS Data: Year-Over-Year Change

Last week we posed the question if tax refunds were really the primary issue facing retailers, or if it was distracting from other challenges. Leveraging Amenity Analytics' NLP platform, we identified several secular pressures that will remain after the distraction of tax refund timing passes:

Amenity NLP Platform: Secular Pressures Facing Specialty Retail

Pricing pressure

  • Dollar General (3/14/19):

"Gross profit, as a percentage of sales, was 31.2% in the fourth quarter, a decrease of 91 basis points. This decrease was partially attributable to higher markdowns."

  • Express (3/13/19):

"The majority of the contraction that we’re expecting in Q1 is one driven by the reduction in sales and the negative guidance that we’re providing of -9%to -11%, along with the fact that we’re going to be increasing the promotions in Q1 to clear through inventory to get us to the right place for Q2."

Freight costs driving lower e-Commerce margins

  • Dick's Sporting Good (3/12/19):

"The decline in gross margin was driven by higher shipping, fulfillment and freight costs as a result of our strong eCommerce growth and by occupancy deleverage."

  • FTD Companies (3/14/19):

"Results for our Personal Creations business were very strong for the first 3 quarters of 2018, but fell short of our expectations in the fourth quarter, largely as a result of marketing cost pressures and higher freight costs."

  • Ulta Beauty (3/14/19):

"So again, pressure on the gross margin line but on the EBIT line, stores and e-commerce is a much closer horse race overall."

Product agility

  • Vera Bradley (3/13/19):

"The days of every store having the same assortment is just not resonating with the customer like it used to."

  • Tailored Brands (3/13/19):

"In a world of slow or declining foot traffic, a strong e-commerce business will be an essential driver of growth. Digitally-native players have demonstrated that this is true even in the suiting category. Our relatively low e-comm penetration, is unfortunately, evidence of a historical act of strategic emphasis and investment in e-comm at a time when the customer increasingly expects to be inspired and be able to transact seamlessly across all channels."

  • Stein Mart (3/13/19):

"So as we begin 2019, we’re excited about our new initiatives, which are focused on sales growth. And although early first quarter sales have been a bit challenging, these initiatives give us the opportunity to improve our annual results over last year."

"In assessing our product categories, it was apparent we were missing 1 major business, children’s."

Wage inflation

  • Genesco (3/14/19):

"...we still have upward pressure on wages."

Europe Macro

  • Genesco (3/14/19):

"Across the Atlantic, our footwear results were significantly more challenged. With the holiday season playing out against the continued backdrop of weak consumer demand for apparel and footwear in the U.K. and even greater uncertainty around Brexit, Schuh delivered a disappointing high single-digit comp decline."

Consistent with IRS Data, Most See Tax Refund Picture Clearing

  • Zumiez (3/14/19):

"February was a little bit of a choppy month. It definitely started better and then finished better. We had a little bit of a slowdown in the middle. So I think we did experience some challenges with the weather. Specifically, some variability around the country and on the West Coast and I think that did impact the quarter. Gotten strong eras we move through. I think there’s probably also some timing related to the tax refund in there and how those dollars are coming across that impacted the quarter. So a slower start to February. Our first week of March was better and kind of got us to where we are in the comp guidance today."

  • Genesco (3/14/19):

"The new year started slowly in February, with a delay in income tax refunds due to the government shutdown. While our comps for Journeys in particular were affected by these delays, comps have been very quickly catching up as refunds are catching up."

  • Walmart - Bank of America Conference (3/12/19):

"Tax refunds, you’re reading the same things I do. Early in the process, your reading of that was lower. It feels like we’ve caught up some in that process. I think there will be a little bit of a difference between middle income and lower income, how they see those tax refunds go based on child credits and tax brackets and other things like that."

  • Tailored Brands (3/13/19):

"And there’s no doubt the current trends are influenced in part by some macro factors, whether that be the delay and – or size of tax refunds or weather in certain parts of the country."

  • Ascena Retail Group (3/14/19):

"I think it’s all of those things (weather, tax refunds), and probably more. The late Easter, I think, does have an impact as well. And until we get to warmer weather and Easter, we’re not really going to be able to tell if there is an across-the-board slowdown in consumer apparel spending. So right now, we’re just going to wait and see."

See Amenity in March: 

Our team at Amenity Analytics looks forward to joining Fintech leaders participating in the AI and Data Science in Trading Conference on Tuesday, March 19 and Wednesday, March 20. Please use our discount code Sponsor10 to save on your registration and meet us at our booth.

Join the Amenity Viewer Beta Program today to analyze earnings call transcriptions and enable you to spot outliers, identify critical insights, and understand key drivers.

Transcript text provided by S&P Global Market Intelligence.

Copyright ©2019 Amenity Analytics. 

September 18, 2019

Sentiment Analysis: Updated Regional Bank Uncertainty Ahead of Fed Rate Decision

We follow up on our regional banks white paper, applying our NLP platform to the full set of earnings calls from regional banks this quarter to explore the state of uncertainty before an expected rate cut on September 18th. Our rationale for close scrutiny of regional bank earnings calls holds true since our last publication as we find deceptive commentary indicating there may be underlying uncertainty regarding headwinds to net interest margins.
September 10, 2019

Analysts and Executives Silent on California Consumer Privacy Act

Under four months until the implementation of the California Consumer Privacy Act, Amenity’s text analytics tools detect a concerning absence of commentary in quarterly earnings calls. Against the backdrop of GDPR’s recent history, we would expect significantly more focus in the Q&A between analysts and management teams. We use our platform to contextualize CCPA in the broader context of global data privacy reform.
July 30, 2019

Sentiment Analysis: Regional Banks Shaky Prior to the Fed's Interest Rate Decision

We use our NLP platform to analyze regional bank earnings calls and estimate economic uncertainty in advance of the Federal Reserve’s rate decision. We uncover elevated deception levels focused on margin topics related to interest rates and net interest income, revealing evasive and euphemistic language patterns.
July 24, 2019

Snapchat Earnings: Beyond the Headline a Look at Cost-Price

Snapchat's 2Q19 showed a turnaround moment with beats on user growth and revenue, but a look beyond the headlines through the lens of our text analytics platform shows that while Deception has tapered off SNAP's 1Q18 high, the trend in Cost-Price is worth a closer examination.

Stay Informed: Join Our Newsletter

Keep up to date with our analyses and how we're making changes.