No retailer is safe from the apparel slump.
Ross Stores added its name to the roster of retailers reporting disappointing first-quarter sales, even as competitors in the off-price sector continued to accelerate. Old Navy, which had long been a bright spot in Gap's struggling portfolio, showed a second quarter of weakness, as redundant styles weighed on results.
And Macy's, not long ago a darling of Wall Street, took another blow late Thursday, when Moody's revised the chain's rating outlook to "negative" from "stable." In her downgrade, senior analyst analyst Christina Boni cited softness in apparel spending that she expects to persist.
As several brands reported stronger clothing sales during the quarter, these retailers' misses exemplify how in a period of tepid consumer demand, apparel sellers have little room for error. Even as analysts made the case that Ross' shortfall was a small speed bump for an otherwise well-positioned retailer, investors bailed on the stock, sending its shares 4 percent lower Friday.
The retailer on Thursday said it generated sales of $3.089 billion in the first quarter, falling short of Wall Street's consensus estimates. CEO Barbara Rentler attributed the chain's miss to mistakes within its women's assortment, which featured the wrong fabrics and colors for spring.
Still, Cowen & Company analyst Oliver Chen reiterated his conviction in the retailer, calling the pullback in its shares a buying opportunity.
"We continue to believe Ross is benefiting from a healthy low-to-moderate income consumer, accelerating share shifts to off-price and away from department stores, and attractive inventory in the channel," he told investors.
Analysts were less convinced the changes at Old Navy would take hold quickly, as the brand posted a second straight drop in same-store sales. On a call following its first-quarter report, CEO Art Peck tried to calm investors' jitters by saying weakness at the brand was due to poor merchandising and marketing, as opposed to anything being fundamentally wrong with the label.
Still, Stifel Nicolaus analyst Richard Jaffe downgraded the retailer's shares to "hold" from "buy," saying the steps its taken to fix the merchandise across its portfolio has not helped bring shoppers back into its stores.
Peck had previously promised that spring would be when new product at Gap would drive that brand's turnaround. Yet while the CEO said the label's first-quarter performance would have looked much better if it weren't for volatile traffic when the weather cooled, its comparable sales fell 3 percent.
"The prolonged underperformance of each of the Gap's businesses despite management's best efforts has undermined our confidence and limited our visibility for improvement," Jaffe said.
As for Macy's, Moody's said the "length and magnitude" of the department store's weakness — in light of a generally healthy consumer base — suggests it will have a tough time stabilizing demand and growing its margins.
When Macy's first reported earnings last week, analysts were concerned the chain's decline signaled a dropoff in consumer spending. But as chains, including Home Depot, TJX and Wal-Mart, reported solid revenues, the conversation shifted toward retailer-specific problems.
A few retailers — namely TJX and Wal-Mart — even called out apparel as an area of strength during the quarter. Specialty apparel stores Urban Outfitters and American Eagle likewise surprised Wall Street with better-than-expected revenues, thanks to an improved assortment.
So while the apparel malaise is expected to drag on, those who get their product and pricing right should still have a chance to grow their topline — at least for now.
"When you give people a reason to buy in bricks-and-mortar they will buy," former J.C. Penney CEO Allen Questrom said.