Retail Surprises for Short Investors

Markets in the US overcame early losses after Wal-Mart (WMT, -7.5%) posted lower than expected December sales and cut its 4th forecast. Other retailers, including Gap (GPS), Macy’s (M) and Limited Brands (LTD) cut profit outlooks and all saw a drop between 3% and 6.5%.

Gap has 2.5% of its shares outstanding on loan (%SOOL), up from 1.5% in late November. Utilisation is at 9.5%. The company’s share price has ebbed and flowed around the $12 to $14 mark over the past three months.

Macy’s has 8.5% SOOL, down from 11.5% in early December, and up from 4% in early November. Utilisation is at 25%, down from 28%. The company’s share price has in general risen from $6 to $12 over the past two months.

Limited Brands has 3% SOOL, down from 4% in late November. Utilisation is at 11%. The company’s share price has also risen from $7 in mid-November, to $9 now.

In a complete twist – and further proof that the world is a very strange place now – Sears Holding Corp (SHLD) jumped 23% on Thursday after it forecast quarterly profits greater than Wall St expectations.

Sears has 9% of its SOOL, up from 8.4% earlier last week, so as you can see these shorts have been caught off guard. The recent uptick in % SOOL could not have come at a worse time for investors.

Comments

[Roger Knights:]

Regarding the comment on Gap, the statement "The company’s share price has ebbed and flowed around the $12 to $14 mark" would be more accurate if it read, "... around the $11 to $13 mark"

Jan 09 04:59 PM

[{5U}:]

It's a tell that crowded shorts are best to be covered on news and reloaded post the squeeze.

When shorting always leave powder for the squeeze and remember, it will always be more painful than anticipated.

But fundamentals ALMOST always win..(ahem..autos)

Jan 09 07:07 PM

[{5U}:]

It's a tell that crowded shorts are best to be covered on news and reloaded post the squeeze.

When shorting always leave powder for the squeeze and remember, it will always be more painful than anticipated.

But fundamentals ALMOST always win..(ahem..autos)

Jan 09 07:07 PM

[Maxe Paul:]

The real pain in retail is yet to be felt IMO, with an increasing unemployment rate each month, and a christmas season holding up spending, now gone, it is now that retailers will feel the full force of the economic crisis. It would certainly be a brave investor who goes heavy into a long position on any of these stocks over the next 6/12 months.

Jan 10 01:20 AM

[Crude Oil T...:]

I only short using Index ETF's but man that Sears [SHLD] had to have been a great opportunity for shorting last week.

Good work, great post!

Jan 10 09:37 AM

[Harp:]

SHLD is much more than department stores. Eddie Lambert has used the cash to make some excellent investments not to mention the eventual value of their real estate. Long term this will remind one of Warren Buffet's BRK.
I use any drop to add to position.

Jan 10 03:43 PM

[Jim Hawthorne:]

TCwarm: while you might like to think of SHLD as a Buffett "diamond in the rough" and "use any drop to add to position", I dearly hope you are selling the rips as well as buying the dips.
I would caution you to consider this stock from the perspective of an 18 month daily chart, and then attempt to justify buying more of this turkey as a long term investment after considering an 18 month 91% drop in earnings and negative sales growth.
Hope is an admirable human trait, and we need more of it in this world. However, hope and wishful thinking are very poor investment strategies!

Jan 11 11:52 PM