As we head into the next round of retail earnings, I think we have to wonder whether things are as grim as the stocks portrayed the reports to be.
If you take a second look at the crucial reports from Macy's (M) , Kohl's (KSS) , Nordstrom (JWN) and JC Penney (JCP) , you find things that you can like about these even as they don't stand out as any that must be owned.
Let's start with Macy's. The numbers were clearly disappointing and the disingenuous "keeps forecast" line totally left me cold, because the company's been relentlessly cutting its forecast. The total comps were horrendous, minus 4.6% vs. an expected minus 3.5%. Apparel was pretty disastrous, and the stock correctly fell hard, down to six-year lows.
But here's the actual good news: the 6.4% yield seems fairly safe, especially given that Macy's is putting the wood to its weakest stores. Second, the stock might have been nearer to these levels if there wasn't so much idle takeover talk. Third, there is some real estate value left here, even as the company moved too slowly to monetize it. It seems to have an awareness of what can raise its numbers: clear value, exclusivity and simplicity. Shoes have become a winner, and Macy's is still doing well at fine jewelry and make-up. It's not a total disaster, although I could argue it is the weakest of the four.
I actually liked Kohl's. I know, that seems pretty insane, but with an excellent balance sheet, a 6% very safe yield, an aggressive buyback -- 4.0 million shares retired, bringing the total in five years from 270 million to 170 million -- Kohl's has the most optionality here. It also has stores in strip malls, which makes leveraging an online situation easier for order and pick-up.
Not only that, but Kohl's did see what can only be described as a dramatic pick-up from February, and that lasted into April. The real story here is how well UnderArmour's (UA) launch went -- even as a boutique firm had said, incorrectly, that the launch was doing poorly. What I think people are missing here is that if Kohl's brings in other name brands, it seems to know how to sell them. I also like its personalized pricing initiative and its 30 million card base. There's a lot it can do with machine learning, if it can harness that base and know what it does and likes. It's the best of the four.
I am confounded by Nordstrom, because while it says all of its flagship stores make money, it still had a 6.4% decline in same-store sales. The fact that that the whole chain comped at minus 0.8% and that it did, indeed, have an upside surprise was completely ignored, in part because the company itself seemed so confused about what to do with a slower online business and a discount business that seems stalled. I do know that its legendary service isn't being leveraged the way I expected. It seems to have lost its way even as it has nice profitability. Unfortunately, at 13x earnings and a 3.5% yield, it seems expensive vs. Macy's and certainly vs. Kohl's.
The one that's most intriguing is JC Penney, because it certainly has some strong things going for it, namely a growing appliance business, with good sales of mattresses and furniture -- one that had the misfortune of being talked about on the same day that Amazon (AMZN) was vocal about taking on those categories -- and its Sephora business remains hot, hot, hot. Sephora's in 75 of its stores and wherever it goes, it works, including long lines out the door of the mall, a block long in some of the rural openings. Its salon business is smoking, too.
Penney, like Kohl's had positive progression through the quarter. However, Marvin Ellison started his call by saying that the chain had "disappointing top-line results," which turned off anyone seeking to learn more.
We have some powerful retailers reporting this week, namely Home Depot (HD) and Target (TGT) . Home Depot's facing its first real Amazon challenge, but many of its suppliers have already reported strong numbers. We don't know about Target, although its ELF make-up business seems to have stumbled in April. It's just worth thinking that some of these are oversold and that Kohl's, above all, could rally if the temperament of the group can get more positive with either a Home Depot or Target win.
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