Trader Talk

Retailers report tomorrow, but it won't be pretty

Paulo Fridman | Bloomberg | Getty Images

It's the retailers turn for earnings. Wal-Mart (WMT) and Nordstrom (JWN) report tomorrow morning and afternoon, respectively, and it isn't going to be pretty.

Wal-Mart already guided lower a few weeks ago, so barring a catastrophe, we are unlikely to be greatly surprised. The consensus is for earnings of $1.60, a decline of four percent year-over-year. Same-store sales are also expected to DECLINE by 0.3 percent.

The issues:

  1. Wal-Mart's customer base has not been particularly helped by the gains in housing, and certainly not by the gains in the stock market
  2. Higher heating costs (natural gas passed $6.00 today, a five-year high)
  3. The cut-off of extended unemployment assistance and food stamp spending cuts
  4. Management deliberately adopted a highly-promotional policy, at the expense of margins; it's unlikely this was successful
  5. The tax refund checks were delayed again (they are finally coming in this week)

It's a different customer, but Nordstrom is also expected to see a decline of four percent in earnings year-over-year. It didn't guide lower, but you can bet it will probably report that December was in line with expectations, but that January was below expectations.

As for the weather, well, it may have kept some people out of the malls, but it should have helped sales of cold weather items, no?

It's not much better for the rest of the retail space. RetailMetrics estimates that fourth quarter retail earnings (for those reporting January-ending quarters) would see a DECLINE of five percent year-over-year. That would be the worst quarterly report since Q2 2009....nearly five years ago.

By contrast, overall earnings in the S&P 500 are expected to INCREASE 7.8 percent, according to S&P Capital IQ.

This is a reversal of a long-term trend: Retail earnings have outperformed the overall S&P 500 earnings for the last seven quarters.

But isn't this already priced into retail stocks? Many traders are looking to buy retail believing there will be a big weather bounce come March, and the tax refunds kicking in will definitely help.

But be careful: Crummy numbers may already be priced into Wal-Mart, but there could be some nasty surprises elsewhere. For example: I wouldn't be surprised if we saw misses and poor guidance from Ross Stores (ROST) and TJX (TJX)...they are going against tough comps year-over-year...and major gains from aggressive competitors like Macy's (M).

By CNBC's Bob Pisani