A barrage of disappointing sales reports and guidance cuts from retailers is roiling the broad sector.
The department store sector is ground zero for the damage. Kohl's (KSS -18.1%), Macy's (M -14.5%), Nordstrom (JWN -8.9%), Dillard's (DDS -9.3%) and J.C. Penney (JCP -7.3%) are all down sharply.
Chains also bleeding include Cato (CATO -9.6%), Tailored Brands (TLRD -6.3%), L Brands (LB -7.5%), Ascena Retail (ASNA -5.7%), Francesca's (FRAN -6.5%), Stein Mart (SMRT -4.7%), Stage Stores (SSI -5.8%), Urban Outiffters (URBN -4.4%), DSW (DSW -3.8%), Express (EXPR -3.8%), Citi Trends (CTRN -4.3%).
Apparel makers Fossil (FOSL -6.5%), G-III Apparel (GIII -6.6%), Sequential Brands Group (SQBG -5.5%), Vera Bradley (VRA -4.2%) and Coach (COH -2.5%) are also getting punished.
If there's one warning to encapsulate the retail weakness it came from L Brands which cited an alarming drop in merchandise margins. It's hard to believe that Amazon (NASDAQ:AMZN) didn't have something to do with that development. By the way, Amazon is up 2.06% on the day.
Shares of traditional department stores tumble after-hours as Macy's (NYSE:M) and Kohl's (NYSE:KSS) cut earnings estimates due to weak holiday sales (I, II); Macy's also added details on its previous announcement to close 100 stores, saying the moves will result in 10K job cuts and a $575M reduction in 2017 sales.
The news causes a ripple effect across the sector: JWN -5.9%, JCP -4.8%, DDS -3.4%, SHLD -2.5%, TGT -1.8%, ROST -1.5% AH.
Apparel and accessory companies with significant presences in big box retail also are lower: KORS -2.8%, COH -2.6%, KATE -1.1% AH.
The retail sector continues to get weak at its knees as concerns over the impact of trade and tax policies build up. Investors also have their eyes on a harsh take from MKM Partners on holiday traffic and NPD Group data suggesting the lack of any post-election bounce in retail sales.
Boot Barn Holdings (BOOT -7%), Tailored Brands (TLRD -7.1%), Ascena Retail Group (ASNA -6%), Zumiez (ZUMZ -6.1%), Dick's Sporting Goods (DKS -6.5%), Dillard's (DDS -6.1%), Zagg (ZAGG -6.3%), Big Lots (BIG -5.5%), Gap (GPS -5.3%), American Eagle Outfitters (AEO -5.4%), Guess (GES -5.3%) and Abercrombie & Fitch (ANF -4.9%) join the list of specialty retailers, C-store chains and heavyweight general merchandise names reported on earlier that are in descent.
Moody's forecasts retail sales will increase 3% to 4% in 2017 and operating income will be up 4% to 5%,
Relating to DG, DLTR, FIVE: "Dollar stores will be among the top-performers in 2017, as cash-strapped consumers look to save money on multiple fronts."
Relating to the home improvment sector (HD, LOW): "Home improvement stores such as Home Depot and Lowe's will benefit from the continuing robust recovery of the housing market, and the subsiding deflationary pressure on supermarkets in 2017 should result in the sub-sector outperforming the broader retail industry."
Relating to mall chains (GPS, FINL, FL, CROX, DECK, LB, ANF, DDS, M, JWN, AEO): "Apparel and footwear sellers, on the other hand, will be squeezed as consumers continue to spend more on healthcare, rent, home-related products, electronics and cars, while weak traffic trends and competitive pressure will continue to impact operating performance of department stores."
Moody's says Wal-Mart (WMT +0.4%) will continue to see bottom-line pressure as wage hikes and investment for future growth squeez its profits.
The latest read from Redbook on retail store sales indicates that sales are up 1.2% Y/Y through the first 26 days of the month. Redbook expects a 1.4% gain for the month.
Department stores reported strength in gift merchandise, including small appliances, accessories and cold weather apparel. The level of discounting in the sector will have a large impact on how Q4 earnings play out.
Department store stocks are rallying right along with other mall names on a boost in confidence from investors and analysts that consumer spending will perk up and GOP tax policy will help lift profits across the sector.
Sears Holdings (SHLD +4.3%), J.C. Penney (JCP +3.8%), Kohl's (KSS +5.1%), Bon-Ton Stores (BONT +6.7%), Nordstrom (JWN +5.7%) and Dillard's (DDS +4.8%) are all solidly higher.
An interesting case is Macy's (M +5.2%) which drew the ire and Twitter hostility from Donald Trump during the primaries. Shares of Macy's are up 18% since the election as investors assume that the Trump-Macy's feud is a non-factor.
Retail store chains are breaking higher as investors digest the impact of the GOP sweep.
A very popular topic on Q3 conference calls was election anxiety in the U.S., with the thought that consumers were holding back.
An interesting point is that in recent consumer sentiment surveys Republicans showed a sharply lower positive reading on the state of affairs than Democrats. If the theory holds out, close to 60M Trump voters will now open their pocketbooks a bit more.
Retail sales increased 2.7% Y/Y and 0.6% M/M in September on broad gains across categories. The sales totals for August were also nudged slightly higher.
Sales from nonstore retailers like Amazon (NASDAQ:AMZN) were up 10.6% Y/Y to once again account for a higher percentage of overall sales.
The building material & garden equipment category showed a 1.4% M/M and 5.6% Y/Y gain which bodes well for Home Depot (NYSE:HD) and Lowe's (NYSE:LOW).
Department stores (DDS, SHLD, JCP, M, JWN) lagged again as sales fell 0.7% M/M and 6.4% Y/Y, while furniture and home furnishing stores (HVT, WSM, KIRK, RH, BBBY) outpaced the broad averages in the sector.
Restaurant sales (NASDAQ:BITE) showed a nice jump from August, although the breakdown between large publicly-traded chains and independent restaurants isn't broken down.
The early take from retail analysts is that the overall tone from the report is ever-so-slightly positive for Wal-Mart (NYSE:WMT) and Target (NYSE:TGT).
Dillard's (DDS +5.9%) is on the move after Credit Suisse upgrades the department store stock to Outperform from Neutral.
"While we do not expect a significant improvement in reported profitability, we believe the company will continue to reduce overall debt and buy back stock, effectively reducing the enterprise value," reads the CS note.
The investment firms sets a price target of $70 (4.8X EV/EBITDA).