Retailers need to ‘reset the bar’ ahead of gloomy earnings season: Analyst

The retail sector is bracing for more bad news ahead, and retailers need to manage expectations accordingly, one analyst said.

"It seems to me the best thing you can do right now is reset the bar," BMO Capital Markets Analyst Simeon Siegel said about retailers on Yahoo Finance Live (video above). "The best thing you can do on guidance right now is just gut it."

Target kicked off concerns about the retail sector's health in June with a shocking decision to liquidate massive amounts of slow-moving inventory and take a more cautious view on near-term profits.

Since then, a flurry of pre-announcements and warnings from retailers have primed the pump for an awful earnings season — in terms of actual second-quarter results and guidance for the rest of 2022.

FILE - In this June 3, 2019, file photo a shopping cart sits in the parking lot of a Target store in Marlborough, Mass. Plenty of retailers like Target and Walmart allow shoppers to drop off online returns at their stores. But now, a growing number of retailers are accepting rivals’ returns. (AP Photo/Bill Sikes, File)
In this June 3, 2019, file photo a shopping cart sits in the parking lot of a Target store in Marlborough, Mass. (AP Photo/Bill Sikes)

Speaker maker Sonos warned of slowing consumer spending after markets closed Wednesday. The same cautious sentiment was heard at grill maker Traeger and its rival Weber, which badly missed second-quarter earnings expectations and canned its CEO.

Best Buy also dropped a dud of an earnings pre-announcement a few weeks ago, in part signaling the bad news from Sonos.

But wait — there’s more.

Walmart, the world's largest retailer, slashed its second-quarter and full-year profit outlooks recently owing to rampant inflation and a consumer retrenchment of discretionary items such as apparel.

And in late July, Bath & Body Works warned it would see earnings come in below consensus estimates as consumers reined in their spending.

But to Siegel's point, after Bath & Body Works slashed its earnings guidance, investors remained upbeat against the backdrop of negative expectations, and the stock rose more than 18% in the following two weeks.

Meanwhile, other retailers such as RH, Bed Bath & Beyond, and Kohl's have issued more cautious outlooks as consumers shift spending away from discretionary categories.

"There is this pivot happening from discretionary and general merchandise into necessities," Jefferies Analyst Stephanie Wissink said on Yahoo Finance Live. "The household is having to make discriminate decisions every single week about funding that inflation."

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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