Retail: Keeping It All In Context

 

January sales appear to have improved on the margin, but let’s take a step back and keep the quarter in context. November kicked off the quarter with sales coming in lighter than expected following Black Friday bullishness. Then December disappointed with more companies guiding down than up. Then we have today’s results with the ratio of beats-to-misses coming in net negative (11 companies missed to 8 beats), but six companies guided Q4 higher while only one (SSI) guided lower. Dizzy yet? Quite simply, from start to finish Q4 has been weaker than originally expected especially in the mid-tier. The negative setup headed into 1H remains unchanged.

 

In taking a look back through not only the companies reporting monthly comps (an increasingly less relevant sample), but also the broader group over the last three months, we’ve seen 11 of companies lower expectations for the quarter compared to only 4 taking numbers higher. That’s not good. In addition, KSS taking Q4 EPS up by $0.09 after cutting it by $0.30 last month is hardly net positive. Also, let’s not forget JCP taking numbers down by 35% before officially bowing out of the monthly sales game. Take a look at the table below. It tracks company guidance throughout the quarter and the net change versus original expectations, not simply the most recent data point. Among the most notable negative callouts TGT, KSS, and JCP.

 

Volatility is clearly on the rise and continues to expand the bifurcation between upward and downward revisions. We fully expect this bifurcation to remain present through the 1H at a minimum in an increasingly more competitive pricing environment.

 

A few additional callouts in January:

  • The High/Low-end performance spread remains divergent though higher-end sales slowing on the margin. Within department stores, JWN +5%, M +2.4%, SKS +10.5% and Neimans +9% remain positive despite both JWN and M comping below expectations in January compared to KSS +0.6%, SSI -0.1%, and BONT -3.5%.
  • Not surprisingly, off-price retailers TJX & ROST were the most positive standouts in January coming +7% and +5% respectively and ahead of expectations. The off-price channel is beginning to emerge as an early beneficiary as the higher-end starts to decelerate and competition at the mid-tier heats up. Both increased their outlook for the quarter as well. Interestingly, ROST was the first retailer to offer up its view of F13 at $3.12-$3.27 vs. $3.21E.
  • Following a very strong December, M missed expectations in January, but raised guidance for the second quarter in a row. Online remains a key driver up +39% in Jan and +40% for the quarter and year.
  • Food/Grocery continues to outperform driving results at discounters. Both COST and TGT reported the food/grocery up HSD and low-teens respectively outpacing all other categories with inflation still up LSD. While both came in better than expected, TGT is the notable callout given the sequential reacceleration in the monthly comp for the first time in four months. Improvements in the Apparel and Home categories were key incremental improvements – especially Home up LSD, positive for the first time since September.
  • January marks the first month ex-JCP. There goes another $18Bn of sales relevance out of the SSS sample.
  • GPS posted negative comps again -4.0%, but more importantly above expectations (-5.3%E). Despite missing comps in the first two months of the quarter, the company is either getting less promotional or more aggressively cutting expenses as the company took Q4 EPS up to $0.41-$0.42 vs. $0.35E. This is more positive for GPS on the margin given just how low expectations are, but our bet is that it's the later and stress amongst its competitors in the mid-tier remains a major overhang.
  • The only commentary on inventory levels came from TGT, TJX, and GPS all of which were positively skewed.
  • At the category level:
    • Handbags and accessories were strong particularly at the high end with JWN, SKS, M, and Neimans all highlighting the category. Good for COH, KORS, and LIZ.
    • Home was another positive callout by TGT, KSS and DDS.

 

Longs: LIZ, WMT, NKE, RL

Shorts: JCP, SHLD, HBI, CRI, HIBB

 

Retail: Keeping It All In Context - Guidance Tracker

 

Retail: Keeping It All In Context - TGT sales grid

 

Retail: Keeping It All In Context - Total SSS

 

Retail: Keeping It All In Context - SSS 1 yr

 

Retail: Keeping It All In Context - SSS 2 yr

 

Retail: Keeping It All In Context - SSS 3 yr

 

Retail: Keeping It All In Context - equal weighted SSS

 

Casey Flavin

Director


UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more

Got Process? Zero Hedge Sells Fear, Not Truth

Fear sells. Always has. Look no further than Zero Hedge.

read more

REPLAY: Review of $EXAS Earnings Call (A Hedgeye Best Idea Long)

Our Healthcare Team made a monster call to be long EXAS - hear their updated thoughts.

read more

Capital Brief: 5 Things to Watch Right Now In Washington

Here's a quick look at some key issues investors should keep an eye on from Hedgeye's JT Taylor and our team of Washington Policy analysts in D.C.

read more

Premium insight

[UNLOCKED] Today's Daily Trading Ranges

“If I could only have one thing of the many things we have it would be my daily ranges." Hedgeye CEO Keith McCullough said recently.

read more

We'll Say It Again: Leave Your Politics Out of Your Portfolio

If your politics dictates your portfolio positioning, the Democrats and #NeverTrump crowd out there have had a hell of a week.

read more

Cartoon of the Day: 'Biggest Tax Cut Ever'

President Donald Trump's economic team unveiled what he called last week, "the biggest tax cut we’ve ever had.” Before you get too excited about that hang on a sec. "Trump Tax Reform ain’t gettin’ done anytime soon," Hedgeye CEO Keith McCullough wrote in today's Early Look.

read more

Neurofinance: The Psychology Behind When To Sell A Bull Market

"Most momentum investors stay invested too long, under-reacting and holding tight after truly bad news finally arrives to break the trend," writes MarketPsych's Richard Peterson.

read more

Energy Stocks: Time to Buy the Dip? | $XLE

What the heck is happening in the Energy sector (XLE)? Energy stocks have trailed the S&P 500 by a whopping 15% in 2017. Before you buy the dip, here's what you need to know.

read more