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Citi Previews Department Store Q1 Earnings

J.C. Penney Company, Inc. Holding Company NYSE:JCP, Nordstrom, Inc. NYSE:JWN - Citi Previews Department Store Q1 Earnings

Department store names have yet to report quarterly results, but many big names are on deck to report next week.

Paul Lejuez of Citi previewed the department store sector in a research note. According to the analyst, major names saw their first quarter starting off strong but ending on a weak note.

"We believe many retailers experienced a fall-off in trends in the back half of March, and we believe April remained challenging, particularly without the benefit of Easter to drive traffic," Lejuez wrote.

Here is a summary of what Lejuez is expecting for four of the most notable names in the group.

Macy's

Macy's, Inc. M 0.69% (reporting May 11) entered the quarter with an "inventory overhang," which likely continued in the quarter. The analyst is expecting a gross margin compression of 110 basis points in the reporting quarter, marking an improvement from a 290 basis point drop in the fourth quarter.

Related Link: RBC Believes Dept Stores Have Uphill Battle; Initiates Macy's, Nordstrom At Sector Perform, Kohl's At Underperform

Lejuez also noted he isn't expecting Macy's to announce any major real estate transactions, but this is likely to happen in the coming quarters. As such, this can provide some downside support for the stock despite what he claims to be weakening fundamentals.

Kohl's

Kohl's Corporation KSS 0.74% (reporting May 12) also entered the quarter with elevated inventory and saw "sluggish" trends in the reporting quarter. While the analyst suggested that the company saw some success from the Reed Krakoff capsule collection, it will be difficult to drive positive comps as management works to reduce inventory levels throughout the rest of the year.

Nordstrom

Nordstrom, Inc. JWN 1.54% (reporting May 12) is "really not set-up" to be a promotional retailer, yet it continues to operate in a promotional environment. The analyst added that while its Rack division does offer exposure to off-price shoppers, the segment "has not proven to have the resilience of a true off-pricer."

JCPenney

J C Penney Company Inc JCP 7.61% faces easy comparisons in the quarter, but there exists the risk that the company had to be more promotional than it expected.

DateFirmActionFromTo
Apr 2016Northcoast ResearchUpgradesNeutralBuy
Mar 2016Goldman SachsMaintainsSell
Mar 2016Deutsche BankMaintainsBuy

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