It’s no secret that I’m keeping a close eye on retail stocks. After all, with the consumer being one of the bright spots of the American economy, it pays to invest in stocks that are benefiting from this trend.
And today, we had a number of retail powerhouses have made market-moving announcements. Let’s take a look and see which retailers are making out like bandits—and which are getting left behind in the dust. Be sure to take a moment to click on each company’s ticker symbol to see how it is ranked in my Portfolio Grader tool.
First up, Macy’s (M) revealed lackluster results for the holiday shopping season. In November and December, comparable sales fell 2.7% compared with a a year ago. This was below the company’s expectations, so Macy’s lowered its earnings guidance to a range of $2.95 to $3.10 per share. Previously, Macy’s was targeting EPS between $3.15 and $3.40. To add insult to injury, Macy’s announced that it is closing 68 stores and laying off more than 10,000 employees by early 2017. M is currently a C-rated hold, but I wouldn’t be surprised if the stock is downgraded once the results are tabulated.
Kohl’s (KSS) was another casualty in the retail sector. The retailer announced that it is cutting its 2016 guidance after a "volatile" holiday shopping season. While Black Friday sales were strong, sales in early November and December were quite weak. As a result, Kohl’s now expects EPS to range between $2.92 and $2.97, compared with its earlier guidance of $3.12 to $3.32 EPS. Kohl’s is also in the process of closing some of its stores.
Limited Brands (LB) shares fell after it announced that net sales rose just 1% for December. Limited Brands also cautioned that it now expects earnings to be toward the lower end of its guidance of $1.85 to $2.00 per share. This is below the Street view of $1.98 per share, and well below the $2.15 EPS reported a year ago.
Sears Holding Corp. (SHLD) is one retailer that is actually rallying today. But I wouldn’t recommend buying the F-rated stock just yet. The department store chain is so strapped for cash that it’s selling its Craftsman tool brand to Stanley Black & Decker for $900 million. Sears is also closing 150 stores.
If today’s announcements are any indication, not all retailers are faring equally in the competitive pricing environment. But, there are bright spots in this sector.
In late November, ULTA Salon Cosmetics (ULTA) wowed with its third-quarter report. Net sales jumped 24.2% year-on-year to $1.13 billion, above the $1.11 billion consensus estimate. Sales at stores open a year or longer improved 14.3% on higher customer traffic and increased spending per customer. Meanwhile, net income jumped 23.2% year-on-year to $87.5 million, or $1.40 per share. Analysts were calling for $1.37 EPS, so ULTA posted a 2.9% earnings surprise.
And ULTA’s earnings report in early March is shaping up to be stunning. ULTA expects to bring in between $1.52 billion and $1.54 billion, and between 12% and 14% comparable sales growth. Earnings per share is expected to range between $2.08 and $2.13. Better yet, the analyst community has been aggressively revising its EPS estimates higher, which suggests that ULTA will once again top expectations.
I currently recommend ULTA in my Blue Chip Growth newsletter as a B-rated Buy.