The retail sector saw a bloodbath on Friday following a slew of weak reports from retailers ranging from department to dollar stores. Additionally, the soft October retail sales data added to the woes. With Thanksgiving less than two weeks away and Christmas coming up in six weeks, the growth prospects for the upcoming holiday season suddenly look dull (read: Top Ranked Retail ETFs Wait for a Holiday Season Rally).

Retail Sales Data

After a flat September, retail sales barely rose 0.1% in October, falling short of the market expectation of 0.3% growth. The lackluster growth can be blamed on a surprise decline of 0.5% in auto sales, implying that cheap gasoline failed to spur consumer spending as expected. Notably, consumer spending accounts for more than two-thirds of demand in the U.S. economy.

Fast Recap of Early Q3 Earnings

Total earnings from 60% of the sector’s total market capitalization reported so far are up 7.8% on revenue growth of 11.1%, with 59.1% surpassing earnings estimates and 45.5% beating on the top line.

The sector kicked-off the earnings season on a solid note with growth rates and beat ratios coming in better than the pre-season expectations and other sector performances. But the trend reversed last week after departmental stores like Nordstrom (JWN – Analyst Report) and Macy’s (M – Analyst Report) spread an air of pessimism into the broad sector and disappointed investors. Even better-than-expected results from J.C. Penney (JCP – Analyst Report) and Kohls (KSS – Analyst Report) were unable to sweep away the negative sentiments.

Nordstrom was the major dampener as the stock plummeted 15% on Friday after the company missed on both earnings and revenues by 14 cents and $43 million, respectively. The retailer lowered its sales growth guidance to 7.5–8% from 8.5–9.5% and the adjusted earnings per share guidance to $3.40–$3.50 from $3.70–$3.80 for the full year.

The lackluster results came just a day after shares of Macy’s nosedived 14% on November 11 on the back of weak sales and a downbeat guidance. The second-largest department store retailer posted the third consecutive quarterly decline in sales and missed our estimates by $228 million, though it beat our earnings estimate by a couple of cents. The company now expects sales to decline 2.7–3.1% compared with the previous expectation of a 1% decline and slashed its earnings per share guidance to $4.20–$4.30 from $4.70–$4.80 (see: all the Consumer Discretionary ETFs here).

However, J.C. Penney reported stronger results on November 13 with earnings and revenues coming ahead of our expectations. The company reported loss of 47 cents per share, narrower than the Zacks Consensus Estimate of loss of 58 cents while revenues of $2.897 billion were slightly ahead of our estimate of $2.869. On the other hand, Kohls also topped our estimates by 6 cents on earnings and $26 million on revenues on November 12. Despite the robust earnings announcement, both stocks were victims of the broad retail sector rout on Friday. Shares of JCP tumbled 15.4% while Kohls declined 6.4%, erasing all its gains made on November 12.

Other retailers were also dragged down with their stock prices going deep into red at the close on the day. Some of these include video-game retailer GameStop (GME – Analyst Report), watchmaker Fossil Group (FOSL – Analyst Report), and apparel retailer Bebe Stores (BEBE) that shed 16.5%, 36.5% and 40%, respectively, on a single day. Big-box retailers like Target (TGT – Analyst Report), Best Buy (BBY – Analyst Report), Home Depot (HD) and Wal-Mart (WMT – Analyst Report) were also hit by the sector slump (read: Wal-Mart Sinks: Focus on WMT-Proof Consumer ETFs).