Reality Bites From Retail D-Day

 | Jan 10, 2014 | 10:00 AM EST
  • Comment
  • Print Print
  • Print
Stock quotes in this article:














Finally, the air on retail fantasy island has been cleared. 

Most interesting about the 36%-plus gain in retail last year was the fact that earnings were actually pretty bad for the most part. Turns out Thursday was the day of overdue retail reality checks. 

J.C. Penney (JCP) started us off earlier in the week by not telling us how sales performed in December, but they are, of course, "really pleased." Investors, however, are not pleased with the lack of information. I suspect margins will once again look like a train wreck as promotions are the only way to claw back sales. As I said in my J.C. Penney article Thursday, please take a Dramamine if you are going to ride this ride -- or, better yet just stay away.

In the "your bad is worse than my bad" press release category, Sears (SHLD) actually made J.C. Penney look good. After a press release rambling about being a "member centric integrated retailer," the retail dinosaur hit us with a negative 7.4% same-store-sales number -- even appliances were negative. Seriously, guys, we read beyond the first two paragraphs. 

We had perhaps the most surprising news of retail D-Day on Thursday night. Abercrombie & Fitch (ANF) reported holiday comps decreased a better-than-expected 6%, with a 4% drop in the U.S. and a 10% fall overseas. The company actually raised guidance due to better sales and cost-cutting.

While the stock was up 12% in recent trading, I believe the gross-margin pain incurred to get to that comp may send the stock back to reality when the company reports earnings. But CEO Mike Jeffries still has a job for now -- and here come the stock upgrades. Watch for opportunities to be on the negative side of this trade. 

The other margin-challenged teen names are also getting a boost, thanks to Aeropostale (ARO) bailing on the ICRxchange Retail Conference. That left investors wondering if the company will be sold. That leaves us with the last teen "A" -- American Eagle (AEO) The best of a bad lot reported comps down 7% but, as with Gap (GPS), American Eagle got a pass for coming in at the low end of guidance. In this environment, earnings in the ballpark of guidance is enough to move stocks higher. 

In my opinion, the biggest opportunity from the fall out of Retail D-Day is L Brands (LB). Limited did exactly what they told investors they would do -- the company hit the promotional pedal to drive comps. A 2% comp increase sent the stock down as margins will weigh on earnings. In the category of "slow and steady wins the race," I will be picking up more LB for 2014.

Columnist Conversations

We will take off some more risk, bank some winners SOLD PG OCT 90 CALL AT 3.3 (in at 2.90) ...
After a very calm and sedate period of volatility which saw the VIX fall not only to all time lows but had a r...
today is a good day to lighten the load and take some positions off the table. SOLD WB OCT 85 CALL AT 11 (i...



News Breaks

Powered by


Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.