Trickle Down: Retail Store Closures Hurting Growth at UPS

UPS Delivery
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Even though United Parcel Service, Inc. (NYSE:UPS) posted strong second-quarter revenue and earnings, the company has said that the large number of recent store closings poses a challenge to the company’s growth.

The Atlanta-based global package company announced that second-quarter revenue advanced 7.9% year-over-year to $14.75 billion. U.S. domestic revenue was up 8.1% on the heels of strong air and ground product growth. Net income increased 9.5% in the second quarter to $1.3 billion, or $1.58 per share.

UPS generated great year-over-year revenue gains in the second quarter and we produced solid earnings per share growth, consistent with our plans,” said David Abney, UPS Chairman and CEO. “We continue to invest in our network to expand our capabilities, our market presence and our global reach.”

Richard Peretz, the company’s CFO added, “Second quarter results were in line with our expectations and we are pleased with the progress on our strategic initiatives. Looking at the second half of the year, our core business performance will continue to produce solid results.”

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However, the company was a little more guided during its conference call with analysts and executives.

Peretz said that the company is “a little challenged because the number of stores that are closing is having an impact on growth,” in business-to-business shipments.

The company conceded that store closings hurt UPS’s bottom line because the closings cut into the number of commercial customers. Commercial business is a lot more profitable than home delivery; though the latter is up thanks to e-commerce sales.

To address this change in dynamics, UPS announced it is changing how much it charges during periods of peak demand during selected weeks in November and December for residential, large packages, and packages over maximum limits.

Major department stores across the U.S. owned by the likes of Sears Holdings Corp (NASDAQ:SHLD), Macy’s Inc (NYSE:M), and J C Penny Company Inc (NYSE:JCP) have shuttered hundreds of locations, while malls are seeing a huge drop in foot traffic as consumers become increasingly comfortable with shopping online.

The total number of retail store closings in 2017 is projected to hit a record 9,452. This represents a year-over-year increase of 361%.

Sources:

UPS Reports 2Q EPS of $1.58 as Revenue Grows Across All Segments,” United Parcel Service, Inc., July 27, 2017.

UPS Says Retail Store Closing Spree Challenging its Growth,” Sourcing Journal Online, July 31, 2017.

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Categories: Job Cuts, News

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