Major Retailers Report Poor Earnings: Why Are Their Stocks Up 60%-100%?

Here are some same store sales numbers for major retailers reporting on Thursday and Friday:

• JC Penney (JCP) same store sales down 7.5% in the quarter ended May 2, 2009 (JCP Earnings Release).
• Nordstrom’s (JWN) same store sales down 13.2% in the quarter ended May 2, 2009 (JWN Earnings Release). [Read JWN's conference call transcript here]
• Abercrombie & Fitch (ANF) same store sales down 30% in the quarter ended May 2, 2009 (ANF Earnings Release). [Read ANF's conference call transcript here]

Are these the kind of numbers that justify 60%-100% moves in these stocks over the last 2 months????

Disclosure: Top Gun is short Nordstrom’s (JWN) and has no position in JCP or ANF.

Comments

[AJB7:]

I hold long-short positions in the retail sector and the run up in ANF JCP and JWN over the last several months has been reflected in almost all retail stocks, so obviously it has nothing to do with the specifics of the companies you mention. This highlights the danger of shorting individual companies without controlling for sector or market risk which long-short strategies allows one to do. For example, I am short JCP but have made money in the rally being long other retail stocks that have gone up even more.

The average and median forward earnings multiple of the retail sector has increased during this rally, so the upward movement in prices is reflecting some belief that retail growth will return over the next several years. Indeed, looking at analysts' earnings and sales projections for these companies indicates that most are assuming a turnaround in or by the 4th quarter of 2009.

May 17 10:20 AM

[Dr. Duru:]

In addition to AJB7's comments, I would add short squeezes (or attempted short squeezes). Check out the stats just on the % of of float sold short (currently):
JWN: 18%
JCP: 11%
ANF: 19%
These are extremely high %s and create big targets when the market mood turns as it has since March.

May 17 09:36 PM