Corporate America's Earnings Season Gets Off to Bad Start

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Bob Evans, Allentown, PA
greg.brock/Flickr
This was supposed to be the quarter that showed that the economy had bounced back. Winter snowstorms held back what could have been a potent holiday shopping season. and when many consumer-facing companies shot blanks during the first three months of this year, they blamed the calendar. The shift of the Easter holiday from March last year to April this year disrupted seasonal spending patterns.

However, now that we are ready to discuss the second quarter -- with the Easter holiday assist and not a snowflake in sight -- corporate America is calling in sick. There were a lot of grim pre-announcements last week, just ahead of the wave of financial reports that will be flooding in over the next couple of weeks.

Warning Signs

The market fell last week, and a major contributor to the tumbling indices was the flurry of companies warning that the second quarter wasn't so hot. In what should have been an otherwise slow news week dominated by World Cup and NBA free agency news, a lot of familiar companies offered up uninspiring outlooks.
  • The Container Store (TCS) reported the comparable-store sales slipped 0.8 percent in its latest quarter. The retailer, which specializes in storage solutions, pins the weakness on a "retail funk" that's coating many chains across the country.
  • Lumber Liquidators (LL) is the country's leading discounter of hardwood flooring. This was a booming market during the early stages of the housing recovery, but Lumber Liquidators is telling investors to dial back near-term expectations after a sharp drop in comps.
  • Rent-a-Center (RCII) would seem to be a natural in this iffy climate as a leader in rent-to-own furniture, TVs, PCs and other home essentials. However, it too is pointing to a material weakness where sales and earnings will fall short of initial forecasts for the quarter. Things are challenging enough where it's resorting to renting smartphones to help drive more traffic.
  • Bob Evans (BOBE) prides itself on serving up "homestyle" food at value prices, but that wasn't enough to help the chain of casual dining restaurants in its latest quarter. Despite selling off its Mimi's Cafe chain to help focus on its namesake concept, Bob Evans saw its same-store sales slip 4.1 percent in its latest quarter. With an activist investor already stirring up unrest, it's not the kind of performance that Bob Evans needed to prove that it could bounce back on its own.
  • Liquidity Services (LQDT) isn't a consumer-facing company, but it staffs a popular exchange for suppliers looking to unload clearance items. Liquidity Services also hosed down its projections last week, suggesting that there's distress even in moving distressed merchandise.
Get Ready to Rumble

These are just some of the companies that took hits last week after unleashing negative news. We can also dive into the soft June sales at the once-trendy Gap (GPS) or even tech weakness at networking solutions provider Gigamon (GIMO) after it warned that it failed to convert potential customers that are being more cautious with their tech decisions.

An optimist will argue that this isn't all horrendous. Companies that aren't announcing or pre-announcing a sloppy quarter now may be ready to live up to expectations -- if not surpass them entirely -- when they report in the coming days. However, that would be naive.

There will certainly be retailers that don't fall into The Container Store's "retail funk" and tech companies that don't face Gigamon's challenges to win over new business.

Then again, given the ominous tone established by a handful of prolific companies last week, it's hard to dismiss concerns. This was supposed to be the turnaround season -- and it's just not living up to the hype.

Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Liquidity Services, Lumber Liquidators, and The Container Store Group. The Motley Fool owns shares of Lumber Liquidators and The Container Store Group.


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Iselin007

The day isn't over it's still 7/16/2014. If earning season is off to a bad start the Markets don't reflect that.

Buffet just donated x amount of dollars to Gates may the money can save all those people about to be cut loose?

July 16 2014 at 10:05 AM Report abuse -2 rate up rate down Reply
mae13rle11

Well, lets see here. Container store items are way overpriced, Lumber Liquidators sells cheap stuff for flipping houses but with the economy better, people want better quality. Rent-a-center is like loan sharking, better economy means less need for them, Bob Evans food is not as popular, especially with younger crowd.... So why all the emphasis on out -of - favor companies? Or did we just need an attention getting headline ??

July 16 2014 at 9:40 AM Report abuse -2 rate up rate down Reply