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Macy's, Nordstrom, Kohl's, J.C. Penney and Amazon are part of Zacks Earnings Preview

Monday, November 13, 2017  
Posted by: Morgan Lovell
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For Immediate Release

Chicago, IL – Nov 13, 2017 – releases the list of companies likely to issue earnings surprises. This week’s list includes Macy’s M, Nordstrom JWN, Kohl’s KSS, J.C. Penney JCP and Amazon AMZN.

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Have Department Store Stocks Turned a Corner?

The impressive stock market performance of department store operators like Macy’sNordstromKohl’sJ.C. Penney and others over the last three trading sessions in the run up to and following their quarterly releases would suggest that market participants are starting to see ‘green shoots’ on the horizon for this beleaguered space.

While there is room for optimism for Kohl’s and J.C. Penney shareholders given their better than expected same-store sales performance, the Macy’s earnings beat doesn’t appear to be nothing more than better than expected management execution with respect to expenses and inventories (Macy’s missed same-store sales estimates).

The market’s positive reaction to results from Macy’s and the others isn’t so much reflective of a fundamental reset for these companies, but rather a function of the extremely bearish sentiment on these names. For example, despite the roughly +7% pop in Macy’s shares over the last three sessions, the stock is down -44% this year, underperforming the Zacks Department Store industry’s -36.1% drop and the S&P 500 index’s +15.9% gain. There is a buyer for every stock at the ‘right price’ and the prices for Macy’s and others likely had overshot to the downside.  

The broader retail sector, however, has done really well this year; in fact the sector has done better than the S&P 500 index. The Zacks Retail sector is up +22.1% in the year-to-date period, doing better than the broader market. The broader sector’s outperformance primarily reflects the reality that the Zacks Retail sector not only houses the likes of Macy’s and other brick-and-mortar operators, but also online vendors like Amazon that are behind the traditional operators’ never-ending pain.

The issues are well known by now: these operators needed literally to reinvent their businesses to effectively operate in an environment where consumers are steadily shifting their spending dollars to the online medium instead of visiting the physical store. This obviously isn’t just a 2017 phenomenon and has been around for a while now, but we get to see an interesting dynamic at play if we look at a longer time horizon, say 5 years.

What is interesting about this longer time horizon is that Macy’s, the department store space as a whole and Amazon shares are roughly moving in-line with each other for quite a while, through July 17, 2015 to be precise. In other words, what seem such obvious existential secular headwinds facing this space at present are only so with the benefit of hindsight; the market had no idea what lay ahead for Macy’s and its peers prior to that July day in 2015. The takeaway from this discussion is that many trends that appear crystal clear in retrospect are anything but that in real time.

What’s the significance of that date in July 2015? Amazon held its first Prime Day on July 15th to celebrate the 20th anniversary of its founding, which it claimed turned out to be bigger than Black Friday. As you can see in the chart above, the world has never been the same since that day, particularly for Macy’s and its department store peers.

Retail Sector Scorecard

As of Friday, November 10th, we now have Q3 results from 22 of the 39 retailers in the S&P 500 index.

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