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Apparel retail earnings haven’t been this bad since the recession

A customer searches for jeans in a Gap store in San Francisco.

David Paul Morris | Bloomberg | false images

The earnings reports of garment retailers have not been so disappointing since the Great Recession.

Companies ranging from Gap Inc. to J.Jill and Canada Goose and Abercrombie & Fitch delivered disappointing earnings reports in recent days, blaming problems such as cold and damp weather, weak traffic in shopping centers, promotions incorrect in the stores and the general errors of the products dragging on the results. The bad news has caused those actions and the industry in general to fall. The S & P 500 Retail ETX (XRT) fell almost 2% on Friday afternoon and has fallen almost 13% this month, which keeps it in its worst month since November 2008, when the XRT lost 20.25%.

Profits for apparel retailers, as a group, fell 24% in the first quarter of 2019, according to an badysis by Retail Metrics. So far, the group had increasing profits since the third quarter of 2017. In the first quarter of 2018, garment retailer earnings rose 26%. The last time the group's profits were so bad was in the first quarter of 2008, when they fell 40%, said Retail Metrics.

"All of these are retailers in shopping centers that experience traffic problems," said Retail Metrics founder Ken Perkins. "The consumer is holding (…) the numbers of feeling have been very high," he added. The problems arise when certain companies are not investing in ways to take customers to their stores and websites, while others do, he said.

Walmart and Target, for example, had reports of optimistic fiscal gains in the first quarter, especially in terms of the strengths of their garment businesses. In fact, they have been investing in clothes, launching more of their own private labels for women's, men's and children's clothing.

"It's not that people are buying less clothes," said CGP president Craig Johnson. But they do not go to the same places anymore.

The biggest victims of changes in tastes are "clbadic, feminine, small retailers," said Johnson, companies such as Chico & Talbot. "The demand for that product is a fraction of what it used to be a generation ago … Women do not dress like that."

With fewer women coming to their stores to buy printed dresses, Ascena Retail Group recently announced plans to close its Dressbarn business altogether, closing more than 600 locations in the process. Earlier this week, Ascena shares were trading as low as 93 cents.

And even though more people go to one-stop shopping venues such as Walmart and Target to buy clothes, they still buy at out-of-price chains like TJ Maxx and Ross Stores, buying more directly from brands like Zara, Nike and Lululemon. . from Amazon, or from online platforms such as Stitch Fix and Rent the Runway.

The threat of tariffs has also been a recent drag on retail clothing stocks, although some have not yet arrived.

The White House is still considering a 25% tax on clothing and footwear imported from China. And many retail executives have been forced to address this problem in recent earnings conference calls. Many companies have not yet incorporated tariffs of 25% in their earnings prospects, which could lead to future disappointments in profits if President Donald Trump finally pulled that trigger.

Then, late on Thursday, more uncertainty accumulated when Trump raised the possibility of imposing tariffs of 5% on Mexican imports from June 10. This round of tariffs, which could gradually increase to 25% in October, would aim to put pressure on Mexico to help curb illegal immigration.

"Many companies are vulnerable," said Johnson of CGP.

From week to date, Abercrombie shares have fallen by almost 30%, while Canada Goose shares have fallen by 29.6%, Gap shares have fallen by almost 15% and shares of the parent company of Michael Kors, Capri Holdings, have fallen by 13.3%. All these companies reported earnings this week.

– CNBC & # 39; s Gina francolla Y John Schoen contributed to this report.

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