We can't keep losing retail and expect that we can have a solid advance.
The sudden decline, though, in almost every cohort of retail is undeniable and unless you think the sector is resting for its next move -- something that I think may be wishful thinking -- you should be concerned, too.
Let's break it down.
First, the pure momentum retailers have stalled or found themselves with headwinds that are pretty unbeatable. The fastest growing retailer I follow, Ulta Salon (ULTA) , tripped up by not tripping up. That's not oxymoronic: ULTA did the number. But when you are at 42x earnings, don't talk to me about doing the number. Talk to me about blowing away the number.
The number two and three momentum names, Dollar Tree (DLTR) and Dollar General (DG) , faltered and faltered really badly. They missed by miles, and Dollar General took its numbers down because of competition. It point-blank cut prices on 400 goods to stay ahead of a newly energized Walmart (WMT) . That's disastrous.
Then there's the specialty players. While I was impressed with L Brands (LB) and Urban Outfitters (URBN) , Footlocker (FL) and Dick's (DKS) , the first two nailed fashion and the second two profited from the end of the Sports Authority debacle. I still like all four, but I am wary because they can be pulled down by the entire group.
We had thought that the safest sector for retail was housing related. But HD Supply (HDS) and Tractor Supply (TSCO) botched their quarters badly and that's taken down Home Depot (HD) hard. The Fill or Kill team had an excellent piece yesterday how there shouldn't be a read-through to Home Depot from HD Supply's terrible execution because the company confirmed end market demand.
But HD Supply was spun out by Home Depot and it has more than 500,000 customers, so no one believes. Tractor Supply, at one time an amazing momentum story, was felled by both a bad ag market and a weak market in Texas because of a decline in oil. No one seemed to believe those reasons and just slammed the thing down hard anyway.
Lowe's (LOW) itself didn't have that good a quarter, which leaves just Home Depot out there all by itself. That's simply not good enough.
How about the discounters and close-outs? Here's a group I still believe in, and we are buying TJX Companies (TJX) for ActionAlertsPLUS.com. It's a solid play into the holidays and then into the disposal of merchandise from 100 Macy's (M) and probably untold Sears (SHLD) , although, even with the stock at $12 they don't seem to know it. HomeGoods is still strong. However, a phony read-through from the pathetic Pier 1 (PIR) nailed TJX. Ross (ROST) is still very good, but TJ can pull down the stock of its competitor pretty easily.
The only winner? Ollie's. Wow. Ollie's Bargain Outlet Holdings (OLLI) . Raise your hand if you have heard of it. I thought so.
The big boxers? Costco (COST) is simply "ouch" and trades down on food consistently. It ran too much off the change in credit cards, we sold a bunch for ActionAlertsPLUS.com, but are itching to get back at $50. I think the itch will be scratched.
Target (TGT) ? Jeez, seems almost down for the count after those last two quarters.
You want nasty? Check back into the department stores: Macy's is wallowing. Kohl's (KSS) has slipped back. Nordstrom (JWN) seems to have lost the momentum from that last quarter. And, most shocking, J C Penney (JCP) , which had a great quarter, is totally in reverse, even though I want to buy it.
Which leaves two that are doing well: Walmart and Amazon (AMZN) . The problem is that both are zero sum. Walmart's delivering in part because it has cut prices and in part because under Doug McMillon it's just doing better. Improved merchandising, less workforce turnover because of higher wages, they are working. Amazon? Just zero sum. Period.
This group, while not as important as health care, technology or finance, punches above its weight in terms of mindshare. The stocks are so visible. The numbers so disturbing. The price action so horrendous. I'd be kidding you if I weren't so worried.
All I can say is, this group needs to snap out of its funk, or the stocks will just get worse. If we hear some positives about back to school, it could reverse. But right now all I can hear when I think about this group is King Midas in reverse. That's not the direction you want if you believe that this market can go much higher without first having a more pronounced decline.
