Key points to remember:
- Macy’s, Kohl’s and Victoria’s Secret: earnings take a trip to the mall
- Pass-through of costs, semiconductors and job themes continues
- Discount retailers offer options to buyers struggling with inflation
Investors reflect on another group of retail income Thursday that looks like a walk in the mall. Macy’s (M) rose 12.5% ââin pre-market trading on better-than-expected earnings. The company said it had been able to pass the higher costs on to consumers and would continue to do so for as long as it could. Kohl’s (KSS) also beat estimates and rebounded more than 8% before the bell. Finally, Victoria’s Secret (VSCO) is also up 11% in pre-market after exceeding estimates.
Overall, retailers have performed well this earnings season. The Dow Jones US Retail Index ($ DJUSRT) has risen more than 11% since October 1. Macy’s, Kohl’s and Victoria’s Secret have all raised their forecasts. With so much nervousness surrounding supply chain issues, it’s good news to get back to normal.
The ability to pass on costs has been a theme throughout this earnings season, as have semiconductor shortages. Strong semiconductor demand was reflected in Nvidia’s (NVDA) earnings report. The company beat profits and revenues, causing a premarket recovery of more than 8%.
This is not all good news. Cisco (CSCO) failed to generate revenue despite exceeding profit estimates and issued disappointing forecasts. The news caused a 5.87% sell-off in pre-market exchanges. Cisco has always been a pretty good indicator for the overall economy, so these developments are worth watching. Alibaba (BABA) is also down more than 5% before the bell after missing out on revenue as well as profit and topped it off with weaker guidance.
Another theme that we have seen during this earnings season is the labor shortage. Deere (DE) appears to have resolved its labor dispute by offering higher wages to its unionized workers. The deal is expected to end a month-long strike. The headline is up more than 2.8% on the news.
Don’t put retailers down
Wednesday, TJX Companies (TJX) grew more than 7% on better than expected profits due to a 14% increase in same store sales year over year. It’s been two good quarters in a row as shoppers return to in-store shopping.
If you’re not familiar with TJX, chances are you’ve seen their stores, which include TJ Maxx, Marshalls, HomeGoods, HomeSense, and more. Like other members of the Merchandise Resale group, they offer designer clothing and home fashion items at a discount. After today’s close, competitor Ross Stores (ROST) will report results and Burlington (BURL) next week. Another store in this group that you may not be familiar with, unless you’ve traveled to the Western Hemisphere, is PriceSmart (PSMT). It serves Central America, South America and the Caribbean. All of these stores and their subsidiaries cater to consumers looking for an offer in times of inflation.
Looking at the chart below, many of these stocks moved sideways over the year despite some volatility. These companies have not experienced the takeover of other big box stores because they do not have a large online presence. They rely heavily on traffic through their physical markets. This means they struggled during the pandemic but could benefit from the reopening.
Strengthening of the dollar: Dollar stores are another group of retailers that could benefit bargain shoppers trying to keep up with inflation. These include Dollar General (DG), Dollar Tree (DLTR) and Five Below (FIVE). According to The Wall Street JournalOne problem these stores have with inflation is finding items they can sell for less than a dollar. So, when it comes to names, Five Below may have the edge.
On Tuesday, Dollar Tree rallied around the news that activist investor Mantle Ridge had taken a $ 1.8 billion stake in the company. Mantle Ridge is credited with helping organize a turnaround for Dollar General.
Apart from the higher price tag, Five Below is different from other groups because it focuses on more trending products that target tweens and teens. However, the company still faces inflation and recently launched its Five Beyond section for items that cost more than $ 5 at 270 of its stores.
Save: Thrift stores aren’t just for family stores, but also large companies like Big Lots (BIG), eBay (EBAY), Etsy (ETSY) and ThredUp (TDUP). Big Lots is more than a saver; he also buys and resells similar surplus goods to TJX and Ross. In March, the company announced plans to open 50 to 60 stores in 2021 and currently has more than 1,400 stores in the United States.
Many analysts see eBay and Etsy as potential beneficiaries of the tight supply chain, as many users of these platforms source materials and products locally. eBay has been around the longest, so you might think it’s the best place for bargain shoppers. However, the company is losing ground against its competitors.
Etsy is working hard to take eBay’s market share. Etsy’s platform allows people to sell their handmade items, vintage and trendy clothing, jewelry, and more. Earlier this month, he reported strong earnings, but the stock still fell. However, it recovered in the following days as analysts began to upgrade it. Since the announcement of its results, the stock has climbed nearly 20%.
Another company looking to get in on eBay’s stock is ThredUp, which sells clothing on a peer-to-peer basis. The stock went public in March but didn’t perform as well. The company is down 2% from its IPO price. On Wednesday, the company released a report that found many interesting statistics like 52% of consumers are concerned about rising prices for popular gifts, one in three think stocks will be limited, and 72% of GenZers said they were open to second-hand gifts, which could be good news for the business.
Battle of the Behemoths: When it comes to online shopping platforms, it’s hard to beat Amazon (AMZN). According to Statista, Amazon represents 41% of American e-commerce. Walmart (WMT) is second with 6.6%. And eBay rounds out the top three at 4.2%.
However, no one is really questioning Amazon’s dominance, but recently people are questioning their ability to deliver for the holidays. In late October, the company announced it was spending billions of dollars to avoid vacation delays. Likewise, Walmart told investors in its earnings call earlier this week that its stores were stocked and ready for the holidays.
While Amazon may dominate online, Walmart has 4,742 Walmart stores and 600 Sam’s Clubs in the United States and an additional 5,224 international stores. Amazon has 89 stores and 589 Whole Foods grocery stores. If consumers want to get out of their homes to do their holiday shopping, Walmart could have an advantage in the battle of these two behemoths.
TD AmeritradeÂ® commentary for educational purposes only. SIPC member.