It’s almost the “happiest time of year,” folks. With the holidays fast approaching, consumers are gearing up to spend a lot of money, and many retail stores are rolling out the discounts and promotions to capture their share of the gift giving season.
However, as the temperature drops, retail sales have also been cooling. In September, retail sales pulled back 0.3%. For tomorrow’s October report, economists are looking for a 0.6% rebound. But can America’s retailers pull it off? Are there buying opportunities to be had in the retail arena? Let’s take a look.
Some companies are in better shape going into the winter months than others. Just this morning I covered Macy’s Inc. (M) in my Stock of the Day feature . Yesterday Macy’s posted 23% earnings growth, beating analysts’ estimates for the third quarter. With solid fundamentals and strong buying pressure, this Conservative-ranked stock earns a B in my Portfolio Grader screening tool.
At the same time, this is shaping up to be a lean winter for big box retailer Walmart Inc. (WMT). As I mentioned in yesterday’s blog post, Walmart’s barely scrapes by as a C-rated Hold in Portfolio Grader. Walmart released its earnings report earlier today, and while the company did post better-than-expected profit, its third-quarter earnings were lower than this time last year. Walmart is also being very cautious with its guidance going forward, so this slight earnings surprise is not enough for me to seriously consider WMT. The company’s track record this year has been less than stellar and there’s a whole laundry list of metrics Walmart needs change before becoming a solid buy in my book.
And Walmart isn’t alone when it comes to needing improvement.
In the third quarter, J.C. Penney (JCP) reported a net loss of $0.62 per share. While this beat analysts’ estimates of $0.88 loss per share, it still wasn’t an impressive number. Revenues also decreased to $2.76 billion for the quarter, compared with $2.78 billion last year. This missed the consensus estimate of $2.81 billion in revenue. So it’s not surprising that JCP is also rated as C-rated hold in Portfolio Grader. JCP is slowly improving in key fundamental metrics, but like Walmart the incremental increases aren’t enough to boost JCP to a buy.
Kohl’s Corporation (KSS) also released its third-quarter earnings report this morning. This report didn’t inspire much confidence either. Kohl’s reported per share earnings of $0.70, falling short of analysts’ estimates of $0.74 per share. Net income took a hit in the third quarter, falling by 20%. KSS is a C-rated Hold in Portfolio Grader.
Overall, retail sales aren’t looking too hot right now, but we’ll get a better sense of what’s going on with retail tomorrow morning, when the Department of Commerce releases its October retail sales report. Regardless of how the retail sales data pans out, I advise caution before diving into any retailer. As you can see above, not all retailers are keeping up, so it pays to run any potential new buys through Portfolio Grader.