I'll admit I underestimated not only the pessimism in retail, but how many struggles we are seeing in the group.
It's difficult to be optimistic about Wal-Mart (WMT) tomorrow after seeing Target's (TGT) results today. Has Dick's Sporting Goods (DKS) really taken so much business from names like Sports Authority and the Sports Chalet or is the whole sector suffering? That will be one I watch closely. I can't think the close-out sales are going to help Dick's guidance here. We're going to see liquidations from approximately 500 stores, and this after Sports Authority said it would look to "streamline" its remaining stores. In other words, look for them to dump slow-selling or small-margin items, but they gave up after only three weeks. I will be impressed if we don't see a squeeze in margins for DKS for at least two quarters and slower-than-expected growth for the same time frame. Even though shares have struggled recently, they are still up by 12% this year.
We'll hear from Urban Outfitters (URBN) as well. This stock always feels like a casino around earnings. The options market is pricing a move around 11%, but I wouldn't be shocked to see 15% or even 20% here. I'm looking at $20-$22 on the downside or $29-$30 on the upside. The trend certainly doesn't favor the bulls.
Williams-Sonoma (WSM) is one of my favorite places to shop, and a few years ago was one of my favorite retailers along with Restoration Hardware (RH). They rewarded me for a time, but that time has passed. While I didn't completely overstay my welcome, I was a bit too stubborn on my exit and left a lot on the table. I'd consider this name again, but if we fall under $47, I just don't see support until we hit the $40 area. Options are pricing in a move of about 5.4%, but this feels woefully underpriced to me. I may consider some May $47.50 puts/$50 call strangles or just straight-up $47.50 puts here.
The only decent-looking large earnings name I follow here is Salesforce.com (CRM). I'm looking for 5% to 7% to the upside here, which puts the weekly $79-$82 call spread in play for around $1.15. The stock has been steadily climbing higher all day, and if you have the ability to hold your nose and flat out ignore P/E's, then CRM might be worth a look.