Retail rodeo: Investors could be in for a wild ride

Saks is the latest retailer to disappoint investors with weaker-than-expected earnings and lackluster sales, fanning fears about about how the sector will fare heading into a heavy week of earnings.

While the consumer is beginning to spend again on larger ticket purchases like home furnishings and vehicles, spending on apparel and smaller discretionary items seems to have slowed this summer. In addition to the overall trends in consumer purchasing, cooler-than-normal weather has been blamed by some retailers for crimping sales of spring and summer seasonal goods. However, many analysts said they expect consumers are just waiting to spend closer to need, and that the back half of the year will be more robust. Many retailers though, seem to be hedging forecasts and issuing conservative guidance, just in case.

(Read more: Sorry retailers, can't blame the weather this time)

Ninety-two percent of S&P 500 companies have already reported second-quarter earnings, but many of retail's biggest marquee names are releasing earnings this week, including J.C. Penney, Home Depot, Lowe's and Williams-Sonoma. Teen retailers will release full results, though Aeropostale and American Eagle already said sales were weaker than expected earlier in the season.

So far, there have been disappointments from expected strong points Macy's and Nordstrom, and a downbeat view of the global consumer from Wal-Mart has many concerned about what's to come from the rest of the retail pack.

Analysts surveyed by Thomson Reuters estimate aggregate retail same-store sales growth for the second quarter will show a gain of 1.9 percent, matching second-quarter 2012.

(in millions)
Same Store
Urban Outfitters 8/19/13 $0.48 $768.10 8.20%
Guess 8/19/13 $0.36 $625.00 -5.20%
Williams-Sonoma 8/19/13 $0.47 $938.60 4.50%
Home Depot 8/20/13 $1.21 $21.80 6.90%
Best Buy 8/20/13 $0.12 $9.13 -0.90%
Barnes & Noble 8/20/13 ($0.74) $1,315.60 -10.50%
J.C. Penney 8/20/13 ($1.06) $2,765.70 -7.60%
Saks 8/20/13 ($0.08) $732.60 3.90%
Dick's Sporting
8/20/13 $0.75 $1,568.40 3.30%
TJX 8/20/13 $0.63 $6,379.80 3.00%
Target 8/21/13 $0.98 $17,286.40 2.20%
Lowe's 8/21/13 $0.79 $15,065.00 5.20%
Staples 8/21/13 $0.18 $5,374.10 -0.80%
American Eagle 8/21/13 $0.10 $719.50 0.10%
L Brands 8/21/13 $0.60 $2,512.50 1.80%
Dollar Tree 8/22/13 $0.57 $1.857.9 2.70%
Gamestop 8/22/13 $0.04 $1,354.20 -13.20%
Sears Holdings 8/22/13 ($1.10) $9,013.30 N/A
Abercrombie & Fitch 8/22/13 $0.28 $966.60 -2.90%
The Buckle 8/22/13 $0.52 $231.50 3.30%
Gap Inc. 8/22/13 $0.64 $3,829.30 4.10%
Aeropostale 8/22/13 ($0.23) $454.00 -9.20%
Ross Stores 8/22/13 $0.93 $2,517.20 2.60%
Children's Place 8/22/13 ($0.53) $382.40 0.40%
Bon-Ton Stores Inc. 8/22/13 ($1.38) $616.80 1.60%
Stage Stores 8/22/13 $0.46 $403.60 3.40%
New York & Co. Inc 8/22/13 ($0.02) $231.31 4.10%
Ann Inc. 8/23/13 $0.65 $639.40 3.90%
Big Lots 8/23/13 $0.24 $1,230.00 -2.50%
Foot Locker 8/23/13 $0.47 $1,455.40 4.10%
Hibbett Sports 8/23/13 $0.39 $186.00 3.20%
Source: Thomson Reuters, August 16

Department stores

Among the earnings being reported, Penney is arguably one of the most anticipated. The department store chain no longer provides earnings forecasts, leaving analysts with many assumptions in their models.

It's been an active couple of weeks for beleaguered retailer as its management issues were thrust into the spotlight by hedge fund manager Bill Ackman. He sent two letters expressing frustration about CEO succession and other issues to the board and released them to the media, and later resigned from the board. Many analysts agree that although Ackman's resignation will at least remove the immediate distraction that resulted from the disagreements, the fundamental issues of slumping sales and discouraged consumers continue.

(Read more: Will Ackman's exit be enough to save JC Penney?)

Penney is expected to report revenue of $2.77 billion for its second quarter, 30 percent less than second quarter 2011. Analysts expect the beleaguered department store to post a loss of $1.06 per share, with a same-store sales decline of 7.6 percent. That's on top of a 21.7 percent decline in second-quarter 2012 same-store sales.

The department store's cash balance remains of high importance for analysts assessing the financial health of the company, and many believe the cash balance will continue to deteriorate at a fast clip at least through the beginning of 2014. In an AUg. 1 statement responding a media report that CIT had halted financing for the retailer's vendors, JCP said it expected its second-quarter cash balance to be $1.5 billion.

(Read more: Big test for JC Penney: Back-to-school season)

Struggling department store Sears Holdings will report earnings Thursday, along with smaller department stores Bon-Ton Stores and Stage Stores. Morgan Stanley's Kimberly Greenberger said, "we think rising uncertainty limits retailer incentive to guide strongly."

High-end loses Teflon luster

It had long been thought that high-end consumer spending was Teflon-like, but that assumption is now being called into question. Nordstrom and Saks have posted weaker-than-expected second-quarter sales and Nordstrom lowered its forecast.

Saks' bad news actually surprised the market on Monday as the retailer wasn't scheduled to post its earnings untli Tuesday.

CEO Steve Sadove often correlates the strength or weakness of equity market returns with Saks sales. Another key factor that plays more into Saks sales than Nordstrom is tourist spending, particularly in New York. Saks Fifth Avenue's NYC flagship location is estimated to make up around 20 percent percent of the retailer's total sales.

Saks' same-store sales rose 1.5 percent, well below the 4.5 percent gain analysts were expecting. Overall sales were $707.8 million, compared with the estimated revenue of $732 million, and the retailer's loss of 13 cents a share was much wider than the loss of 8 cents a share analysts had forecast.

Saks said its margins were hurt by too much inventory of men's and women's shoes and handbags, which forced it to slash prices to clear the shelves.

Saks is in the midst of being acquired by Hudson's Bay for $2.9 billion cash. The deal, which was announced on July 29, has a 40-day "go-shop" period for Saks to solicit alternative proposals. The company said it does not expect to get a better offer, though Deutsche Bank analyst Paul Trussell said, "The fact that the deal price of $16 is near the low-end of what we considered a likely takeout price will fuel continued speculation of a stronger bid emerging in the coming weeks."

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A brighter spot

If there is a bright spot in the retail landscape, it may be among the home improvement and home furnishing retailers. Thanks to a rejuvenated housing market, many analysts expect the sector to turn in a relatively strong earnings performance. Investors will get earnings reports from the world's largest home improvement retailer, Home Depot, on Tuesday, and on Wednesday will hear from its rival Lowe's as well as home goods retailer Williams-Sonoma, which owns brands Pottery Barn and West Elm.

In addition to the expected sales lift from consumers spending on home improvement, Home Depot's management said deferred garden sales in the first quarter will materialize in the second quarter.

On its first-quarter earnings call, Home Depot had said May sales were "great."

In a note to investors, Barclays' Alan Rifkin said, "Although wet weather in some areas of the country likely had a modest negative impact on second-quarter comps, we are still confident that the ongoing housing recovery, and to a lesser extent, Hurricane Sandy related-activity, likely provided support to same-store sales."

Analysts are expecting Home Depot to report fiscal second-quarter earnings of $1.21 per share on revenue of $21.8 billion. Same-store sales are expected to be a strong 6.9 percent improvement over second-quarter 2012.

Ahead of Home Depot's earnings release, Canaccord Genuity's Laura Champine upgraded shares of Lowe's to hold from sell, citing a belief that consumers will spend more on their homes as home prices continue to increase.

JPMorgan analyst Christopher Horvers is slightly more bullish in his Lowe's upgrade, issuing an overweight recommendation from neutral.

In addition to the improving trends in housing, Horvers said that while the company's execution has lagged over the last few years "our channel work indicates [Lowe's] is improving execution … as it goes back to basics with more hours, better in stocks, more cohesive management and an overall back-to-basics approach to the business."

In aggregate, analysts expect Lowe's to report quarterly earnings of 79 cents a share on $15.07 billion in revenue. Same-store sales are expected to increase by 5.2 percent.

Teen retailers

Investors should be prepared for disappointing earnings reports from teen retailers Aeropostale and American Eagle, after both warned that same-stores sales are expected decline 15 percent and 7 percent, respectively. KeyBanc's Ed Yruma downgraded Aeropostale shares to underweight from hold, due to increasing near-term pressure. At least six analysts lowered earnings estimates and price targets for American Eagle after the warnings.

Some believe that competitor Abercrombie & Fitch will report better results, though the focus may be more on the progress made in correcting its inventory. Jefferies recently hosted an interactive panel with teens and young adults discussing how and where they shop, favorite and lesser preferred brands and the impact of social media on spending. According to Jefferies analyst Randal Konik, Abercrombie & Fitch and its Hollister brand are among the less popular brands for its targeted teenage/young adult demographic, which certainly bodes poorly for the back-to-school and holiday shopping seasons.

Conversely, Urban Outfitters made the list for preferred brands for everyday clothing on the Jefferies' teen panel, as it did at a teen panel at Piper Jaffray's consumer conference earlier this summer. Analysts are looking for Urban Outfitters to report earnings of 48 cents a share on revenue of $768.1 million, with an enviable 8.2 percent same-store sales growth.

… And there's more

While there is concentrated attention on the above retail groups and companies, there are still many other notable reports expected this week including: big box retailers Target and Best Buy, specialty retailers Ann, Gap, L Brands and Children's Place, off-price retailers TJX, Ross Stores and Big Lots and sporting goods retailers Dick's Sporting Goods, Foot Locker and Hibbbett Sports. Teen retailer The Buckle also reports earnings on Thursday.

—By CNBC's Courtney Reagan. Follow her on Twitter @CourtReagan.