LOWERED EXPECTATIONS COULD RUIN THE BEST RETAIL SHORT
It is as hard to know when to close a short as it is when to close a long. It helps to have a price target, of course, but a surprising number of traders watching the technicals, think they have more battles to win, after Retail Comps disappointed, on January 6th, and Liz Claiborne (LIZ) warned of a deep miss. This week, staying short might prove ill advised, because the ICR Xchange has the potential to ruin the best planned shorts. If the only calendar you’re using is the one listing major, monthly events, January’s crush of Earnings and Events could bite your profits, one event in particular, this week.
Investors might think their shorts are safe until the Retail Reporting Season starts in February but that’s a dangerous assumption. Since December comp store sales were released, analysts started trimming their expectations, even when companies didn’t. Sentiment has cooled significantly. Therefore, any slightly positive comments from retailers presenting at ICR could prompt a bounce in retailers or apparel manufacturers that were hit particularly hard, last week. And the group often moves in unison.
A hard hit stock, like Target (NYSE:TGT), provides opportunity for any fresh news to be interpreted as good news, though it’s a company that won’t present at ICR, which specializes in smaller market cap retailers and restaurants.Scroll down to the ICR Xchange listing here, to link to the Conference Schedule of Presenters. And though Target suffered more than most, the drubbings doled out to Kohl’s (NYSE:KSS), J.C.Penney (NYSE:JCP) and Macy*s (NYSE:M) were nearly as severe, even as the companies that surprised the most to the upside, like Saks (NYSE:SKS), weren’t rewarded equally. With both Signet Group (NYSE:SIG) & Tiffany (NYSE:TIF) offering holiday trading updates, on the 11th, the possibility arises for some whiplash, even as it appeared that Kay Jewelers, locally (Boca Raton, FL), suffered from a lack of traffic despite steep discounts. In fact, the divide between the high end and low end could widen even more.
ICR Xchange co-sponsors include R.W. Baird, Bank America/Merrill Lynch, Deutsche Bank, Janney Capital, Jefferies, JPMorgan, Keybank, Lazard, Morgan Keegan, Piper Jaffray, Raymond James, RBC, Stephens, Stifel Nicolaous Weisel, Wells Fargo, and William Blair & Co. Therefore, there’s high risk of one or more analysts from those firms deciding the sell off in retailers or apparel manufacturers has gone too far.
Furthermore, there are numerous restaurants scheduled to present at ICR, most of them sit down types but, also Chipotle Grill (NYSE:CMG). Not many restaurants have released holiday comps, yet. Nonetheless, the group suffered a bit from the weaker than expected retail store comps—the snow storm on Christmas Day widely blamed for many of the misses, despite the fact that the prior year’s holiday included a snowstorm prior to Christmas which was, similarly, blamed for comp misses in 2009. Evidently, retailers haven't made the connection between softer revenues and discounts of 50—70%.
The equity markets have been a near one-way street higher since Fed Chairman Ben Bernanke confirmed, QE2’s imminent launch, at Jackson Hole, in late August, retailers among the leadership groups throughout 2010. With a ridiculously heavy investment Bank Conference & Trade Show schedule launched with CES, last week, and a tidal wave of earnings releases pending, starting next week, volatility is likely to return. Whether your preference is going long or short, it makes no sense to overstay your welcome, and keeping track of the Earnings Calendar, alone, won’t suffice. Organizers have scheduled a heavy schedule of Events, as well, trying to make up for lost time at the end of last year, squeezing in as many as they can between winter holidays, and before the summer escape.
Remaining short retailers into ICR, could erode profits, fast. The worst news is already out, in all likelihood. Sentiment has cooled significantly, bringing stock prices to fairly reasonable levels. Be nimble and quick. Remain neither long nor short for too long, at least not this week, anyway. There are simply too many companies presenting, and too many investment bank sponsors at ICR Xchange, to take that risk, now that expectations have been deflated. Yet, don't forget what happened last year, when strength through Q4 gave way to a particularly soft spring. History doesn't always repeat but, then, again, it might. Unless spring weather arrives very early, pent up demand was probably sated over the holidays, for the time being. Consumers might not rush into malls, again, until weeks after the crocuses and tulips bloom. But that doesn't mean analysts won't claim enough is enough, and start recommending retailers, again, on the basis of stocks already discounting the softer than expected holiday sales. And that might be true, especially if they think some sales will be made up during January’s clearance sales, or if they believe externals, like the weather, deterred otherwise eager shoppers.
© Sandi Lynne 2011 Nothing contained in this commentary is to be construed as a recommendation to buy or sell any security. The opinions expressed are the author’s, alone, and should be just one factor in more complete due diligence.*Sandi was long SKS and bidding for TGT call options at the time of this post.
Stocks mentioned: M, KSS, JCP, TGT, CMG, SKS, LIZ, TIF, SIG, CMG
Disclosure: I am long SKS.
Additional disclosure: If readers experience any problems with the links embedded in the article, here it is: Http://wallstreetinadvance.com/Calendar Highlights.htm Sandi Lynne was bidding for TGT Calls at the time of this post and has written for Seeking Alpha about retail, previously