The crushing week in retail saw mall stocks like Ross Stores (ROST) -22%, Boot Barn (BOOT) -18%, Shoe Carnival (SCVL), Abercrombie & Fitch (ANF) -14%, Chico’s FAS(CHS) -13%, Burlington Stores (BURL) -13%, Cato Corporation (CATO) -12% and Urban Outfitters (URBN) -12% all suffer big losses.
Discounters Dollar Tree (DLTR) -20%, Dollar General (DG) -19% and Big Lots (BIG) -18% were also hammered during the week.
Ground zero for the retail collapse was Target (NYSE:TGT), which shed 29% following its earnings and guidance bombshell.
Morgan Stanley points to dollar store stock Dollar General (DG) and Dollar Tree (DLTR) as potentially oversold with international sourcing risk low and freight costs seen as manageable. The firm also thinks the big drops in Costco (COST) and BJ’s Wholesale Club (BJ) place them at attractive levels. The club retailers are called defensive plays with the group selling a high mix of consumables and having different buying processes with limited SKU counts.
Thursday should be interesting. DG, DLTR, COST, Macy’s all report earnings. Watch out if they disappoint.
It seems pretty likely they’ll all sell off. It seems that most money is managed by funds, and most funds trade other funds or sectors.
Birds of a feather tank together.
The art is to identify those few with long term viable businesses for whom this is merely another
passing phase of being out of fashion, not actually a fundamental problem with the future of the business.
It’s a simple truth that most retailers blow up, especially high growth concept stores. And general merchandise/department stores of course.
My view is either build a skill identifying the very very few exceptions, or steer very clear of the entire sector.
I think the dollar stores are an exception. And I hear wonderful things about Costco. I’m known to have said nice things about LKQ.
Walmart isn’t going out of business any time soon.
But that doesn’t mean I’m right about having built the necessary skills.
CROX made a comeback from the (typical) dead, but I can’t for the life of my figure out why. Maybe it’s just a business-level dead cat bounce.
One should only expect an outcome that is an exception to the rule to the extent that you have hard evidence for its exceptionality.
If you have a wildly diverging expectation, you’d better have wildly convincing evidence that it’s not the usual business.
A nice recent growth trajectory is definitely not sufficient evidence. That’s the bait in the trap.
Is this a case where expenses (materials) are rising quickly but retailers cannot pass the expenses onto the consumers? Or if they try to, consumers reduce spending due to higher costs?
Is this a case where expenses (materials) are rising quickly but retailers cannot pass the expenses onto the consumers? Or if they try to, consumers reduce spending due to higher costs?
Almost certainly, to varying degrees depending on the company.
Rising prosperity means more sales at a given price point, rising margins mean high profits at a given sales level.
Falling prosperity and squeezed margins presumably means the reverse for both.
But the great majority of the value of any equity lies more than ten years in the future.
This sort of situation won’t last forever, except for those that didn’t have secure business models anyway.
Just because a farm is having a bad harvest this year doesn’t mean the farmland is worth less. There will be other years.
It’s only a problem if you expect that new situation to be permanent.
Separately, it’s possible that the dollar stores in particular could be somewhat immune because it’s what people might have to trade down to.
And they might even be selling some Giffen goods. (low cost products for which demand rises when their specific prices rise)
If times get tough and budgets tight, and people give up shopping at the more luxe stores, where are they going to shop more?
Walmart if they have a car and can afford gas. Dollar stores otherwise.
In find it interesting to see a lot of articles and posts about investors looking for a place to hide from inflation.
Crypto, gold, commodities, real estate and so on. I don’t think those are the places to look.
What you really want is equity stakes in profitable companies with really fantastic pricing power.
Conveniently, the inflation scare has made some of them relatively reasonably priced.
I’d add American Eagle Outfitters (AEO) to the list of long-term viable business firms. The main line teen and young adult business is notoriously competitive, with the one bright side that many competitors have washed out entirely. The Aerie female clothing business is a good one. But more importantly, management is sharp, the balance sheet is strong (lots of cash, with only non-lease debt some convertible they took on at the start of Covid when the world was highly uncertain), and they tend not to destroy capital on empire building.
Interesting purchase of a logistics firm, with the idea to use it both to help themselves given supply chain issues and to offer the service to others. Think it was more a function of seeing how good/helpful the business was and deciding to buy it (will still be run independently).
52 week high at around $39, and currently trading at $13. I’ve found success in opening positions at around this price point, adding more heavily at $10 and under, and then scaling out at $20-$30. Take a look at the chart over the past 20 years and we can see that the market has offered this trade many times. Certainly not a buy and hold stock, but not the worst firm to trade.
Nordstrom (NYSE:JWN) soared in after-hours trading after breaking apart from retail peers by raising full-year guidance. The outlook was a shocker with many mall chains warning on slowing consumer spending trends.
Sales increased 18.7% during Q4 and gross merchandise value increased 19.6% versus the same period a year ago.
Nordstrom banner net sales were up 23.5% and Nordstrom Rack sales rose 10.3% while continuing to show sequential improvement towards pre-pandemic sales levels.
Digital sales in the fourth quarter rose 18.7% to account for 39% of total sales.
Gross profit increased 190 basis points to 32.8% of sales compared with the same period in fiscal 2021.
DG, DLTR and Macy’s all beat and stocks up double digit.
An hour into trading, DLTR up 18%, DG up 12%, Macy’s up 15%.
COST reports after close.
Seems problems at TGT and a few mall-based clothing retailers, are specific to them, and does not reflect on all retailers. There is no roach infestation here.
Seems problems at TGT and a few mall-based clothing retailers, are specific to them, and does not reflect on all retailers. There is no roach infestation here.
The surprisingly strong results at Nordstrom were quite something.
Sales up 18.7% on the same quarter a year earlier.
Retail is always very nuanced. TGT, WMT are facing clearly facing cost (wage and supply chain) pressures, and yet DG, DLTR managed to post impressive results. COST is doing good, as it primarily caters to middle to upper middle class. Asians make up 12% of Costco customers (7% of US population) and Asians are one of the high income earning group.
For now, still consumer balance sheet is great, they are spending. Where they are spending shifts, shifts constantly That’s the reason I only stick with well established names otherwise avoid the group.
Is that a case of an easy “beat” due to 2021’s results being poor? (I don’t have any retail stocks so just wondering.)
You mean the Nordstrom comment?
Sure, an easy beat from an earnings perspective, as they lost money in that quarter last year.
It’s easy to beat a negative number–just liquidate!
But that revenue bump number is very impressive.
Last year was 2021, not 2020.
And they raised full year guidance.
I have no position and don’t really follow the company, but it was so anomalous among the retail doom and gloom that it made the news.
COST is doing good, as it primarily caters to middle to upper middle class. Asians make up 12% of Costco customers (7% of US population) and Asians are one of the high income earning group.
At least round here, and especially on weekends, the proportion of Costco customers speaking something besides English seems quite a bit higher than the general public. I’ve often thought of it as Costco being seem as part of the American Dream that brought them here in the first place.
I’ve often thought of it as Costco being seem as part of the American Dream that brought them here in the first place.
LOL. Costco really understands their customer at local level. As the Indian-American population increased in my city, Costco started offering Indian snacks, groceries. Recently I noticed how they have increased Chinese and Korean groceries, just as the town saw an increase in Chinese and Korean families.
I quick look at their financials… So there is still a long way to go to get margins back up to pre-covid levels.
Note, I wasn’t saying anything good about them as a company or as an investment.
As you note, the business is not thriving.
Excluding one-off items, revenue and earnings per share are very close to 2019 figures.
I mentioned it only because I found the huge gain in sales year on year interesting–
That quarterly result was quite anomalous among general retailers and destroyed what was till then the recent consensus about the industry. "For the Nordstrom banner, net sales increased 23.5 percent, exceeding pre-pandemic levels, and GMV increased 24.8 percent compared with the same period in fiscal 2021…"
As the saying goes: The marvel is not that the bear dances well, but that the bear dances at all.
That quarterly result was quite anomalous among general retailers and destroyed what was till then the recent consensus about the industry.
There are a lot of seemingly anomalous results among retailers last quarter. They belong to the Consumer Discretionary Sector, and those that anticipated consumer’s discretionary decisions thrived. There was a greater disparity in execution, even within the same category of retailers. In general, luxury retailers did better, mall-based and clothing/furniture/household goods retailers did worse.
WMT and TGT were caught with the wrong kind of inventory which they hoarded, because people were buying a lot of it in 2021.
COST managed inventory much better and were willing to sacrifice margins in the short term. Likewise dollar stores did well after raising prices; their customers had little choice but to buy essentials ( I would actually classify them under Consumer Essentials not Discretionary ). Big Lots did poorly, as its mix of merchandise was in less demand.
A whole bunch of mall-based and clothing retailers did poorly, but again there was a big dispersion: TJX and BURL did better than ROST, URBN, GPS and AEO.
And the luxury retailers like JWN and M did better than mid-priced/discounters.
I am eagerly waiting for next week’s results from RH. They are a luxury furniture retailer, possibly hit hard by supply chain disruption and Ukraine war fallout. Did they benefit from increasing demand from their well-heeled customers, did they have enough inventory, did their customers show discretion and shift expenses to travel? They are a big holding of Ted Weschler, who added to his position last quarter. RH has been cut in half in the last 6 months and trading at unprecedented 11 times fwd EPS. Usually it trades at EPS in mid-20s. Is the fwd EPS ready for sharp downward revision, or is it a once in a decade buying opportunity?