It has been another volatile earnings season for retailers, with stocks making big after-hours moves following their reports.
Mall-based retailers J.C. Penney (JCP) and Nordstrom (JWN) plunged 7% and 9%, respectively. Kohl’s (KSS) tanked 12%—bad, but not nearly as bad as Ascena Retail Group (ASNA), owner of women’s retailers Ann Taylor, Loft, and Dressbarn, which fell a whopping 28%, or Tailored Brands (TLRD), which fell 25%. Meanwhile, Target (TGT) and Walmart (WMT) celebrated happy divergences from the pack, as their shares jumped 7.8% and 1.4%, respectively.
The average percentage change for a dozen retailers that have reported so far was 10.4%—a step up even from the past few volatile quarters. These sharp moves have partly to do with investors’ access to data that gives them the confidence—and occasional overconfidence—to make big bets on retailers, especially when it comes to short-term trades around earnings. But it also has to do with a return to the pre-2018 retail malaise.
Last year saw hopes of a retail renaissance as retailers posted generally strong numbers, seeming to disprove declarations of a retail apocalypse. With disappointing holiday sales and a sluggish start to 2019, last year is beginning to look like an anomaly—or, as Simeon Siegel, a retail analyst at Nomura Securities puts it, a “head fake.” The perceived retail renaissance was a function of low inventory and high price rather than an actual increase in demand, he argues.
Now inventories are up again and trends are reverting to what was seen before: department stores ceding share to off-price retailers; mall-based retailers giving up share to Amazon.com (AMZN) and other e-commerce players; and big-box, off-mall retailers like Walmart gaining traffic. Stocks are volatile because investors have been struggling to figure out whether there was a real rally in the retail sector in 2018 or whether it was merely a false start.
As the new reality gradually settles in, the retail winners are separating more clearly from the losers. That may create disappointment for investors betting on the losers, but at least they won’t be as prone to false hope.
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