Market Wrap-up for Dec. 2 - Breaking Down Retailers' Holiday Expectations

Market Wrap-up for Dec. 2 – Breaking Down Retailers’ Holiday Expectations


Many investors tend to be cautious when it comes to retail stocks, but this time of year can spark interest in these companies. With Black Friday and Cyber Monday behind us, investors are awaiting the results of many of the big-name retailers. In total, sales from the weekend fell 11%, compared to a 2% increase for the same weekend in 2013. Below are some overviews of some of the biggest retailers in the spotlight.

Retailers in the Spotlight

Best Buy (BBY) 

Best Buy is up nearly 10% YTD, which is slightly underperforming the market. This company is one of the most popular stores during the shopping season, resulting in many investors holding the stock for the “Santa Claus Rally.” However, investors should take BBY’s 2013 bull run and its plummet after it released its 2013 holiday sales results into consideration. Last holiday season, BBY missed holiday sales expectations, resulting in the stock falling 30% in just one day. This can be a good lesson for investors seeking “easy” money during the holiday season. It is also worth mentioning that BBY’s website was down on Black Friday, which could have some impact on its sales.

Target (TGT)

Target is another store that consumers and investors think of when it comes to holiday spending. So far in 2014, the stock has been up 15%, posting most of those gains over the past month. Not only was the company faced with disappointing holiday results in 2013, it also had a big data breach, which impacted its holiday season and had lasting effects on the company.

Wal-Mart (WMT)

Wal-Mart is up about 10% YTD. The world’s largest retailer reported higher holiday sales in 2013, and analysts appear to be optimistic for 2014 (although some of its peers are expected to outperform WMT). Even though the company faced a few obstacles this year, including protests and lower consumer traffic, WMT may benefit from its early start on holiday sales. Wal-Mart’s same store sales have been increasing for the last seven consecutive quarters, so it will be interesting to see if this trend continues.

Kohl’s (KSS)

Kohl’s is up just 2% YTD. After a surge earlier this year, the company has been declining this fall after disappointing earnings results. Some investors are concerned with Kohl’s as it struggles to compete with other discount retailers. Despite its bumpy road, analysts expect the company to report positive sales for the Black Friday weekend as foot traffic has increased.

Other Retailers

  • L Brands (LB) – While the owner of Victoria’s Secret and Bath & Body Works may not be one of the big names in the spotlight, it is notable to mention that this retailer has increased same store sales for the last 15 quarters consecutively. This company does not struggle with sales as it less impacted by declining mall traffic like other retailers.
  • American Eagle (AEO) – This company has struggled over the last couple of years. YTD, the stock is down about 3.5% and its price has fallen to around $14 (from about $23 in 2012). Despite its struggles, analysts are optimistic about the company’s holiday sales due to its competitive discounting and promotions.
  • The Gap (GPS) – The company is expected to report lower sales this holiday season. According to analysts, foot traffic is already down as consumers seek discount retailers.
  • Coach (COH) – Shares of Coach have been falling since their high of $77 in 2012. The company did not offer any Black Friday discounts in its regular stores, which resulted in sluggish traffic. The stock is down 36% so far this year.

The Bottom Line

Investors should remember that while the holiday season can be a profitable time for investors, it is also a risky time for retail stocks. Missing holiday sales estimates can be devastating for share prices. On the other hand, it is also important for long-term dividend investors to not panic if a stock is negatively impacted in the short term simply because of weaker-than-expected holiday sales numbers. In the longer term, as long as the companies are on firm footing, most of these prices will recover.