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.
Retail transactions with a discount as part of the sales price increased 79% Y/Y, according to tracking by DynamicAction.
Separate tracking by Noumra Instinet showed 19 of 21 retailers discounted more this year during the first weekend of December, with Ulta Salon (NASDAQ:ULTA) and Athleta (NYSE:GPS) the two expections. Higher promotional activity was observed at Urban Outfitters (NASDAQ:URBN), Michael Kors (NYSE:KORS) and Coach (NYSE:COH).
The poor read on discounting cuts into the argument that the tighter inventory levels in retail would help pricing. Kohl's (NYSE:KSS), Nordstrom (NYSE:JWN) and Wal-Mart all increased sales at a faster clip than inventory piled up in Q3.
Retail sales rose 3.8% on a year-over-year comparison.
A 12% increase in nonstore retailer sales and 6% rise in sales churned up by health and personal care stores (ULTA, SBH) , helped to offset the 6% drop in department store sales (KSS, JCP, [[DDS], M, JWN) and 4% tailoff in electronics and appliance store (BBY, HGG, CONN) sales.
Price deflation cut into grocery store (KR, SVU, IMKTA) sales growth. The category was up 0.1% M/M and 2.6% Y/Y.
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.