How bad was retail really? The Macy's (M) hit was a serious guide down with materially lowered estimates. The period after Black Friday turned out to lay a bomb with some real weakness in some big categories: fine jewelry, women's shoes, fragrance, dresses, outerwear, active and home.
It's unfortunate and it could lead to some big promotions in the first quarter of this year to clear inventory.
But let's make another thing clear: Kohl's (KSS) and Target (TGT) , while not perfect, weren't nearly as bad as Macy's. Kohl's actually raised numbers, not lowered them and Target did pretty darned good.
One step further, these stocks are down so much that I think they reflect all the negatives and none of the positives. Macy's has erased almost its entire move from the bottom and now yields almost 6%. Kohl's stock is 18 points down from its highs and just 8 from its lows. Target's stock is off 22 from its highs and only up seven from its lows and yields almost 4%.
They can all safely be bought, I think, just as value plays, although we downgraded Kohl's this week for Action Alerts PLUS to a "Two" from a "One" because we feared that people would not like the holiday sales.
Now let's step back for a second and figure out what's going on here. We have some real cross currents. For example, Mastercard (MA) reported that holiday sales were up 5% year over year. We know that Amazon (AMZN) has been making noises about incredible numbers. Last night Costco (COST) reported a 7.5% comparable store sales number for December. We know that Burlington BURL is putting up some terrific numbers. Dollar General (DG) and Dollar Tree (DLTR) are killing it, even as the latter, bizarrely, is under siege from an activist hedge fund.
What does it all say? I think it says something so important for retail and for America, frankly, and that's if you are in the mall and you offer full-price goods -- as is often the case with Macy's -- and you aren't cooking with an omnichannel offering at a level that Wall Street likes, you got hammered in the stock market much worse than you got hammered at the actual company. That's why I say that you can buy the stocks of those outfits as they are oversold, but it might just be for a trade.
But if you offer a real bargain to consumers as is the case with Amazon and Costco or the dollar stores, you are clearly differentiated from the pack. Why is that happening?
Oddly, I see the wealthier consumer trading, not down, but different, since the Great Recession. The wealthier consumer wants a bargain and doesn't want to pay full price when they are buying gifts for others. Sure, they will pay full price for Apple (AAPL) goods; we know that the U.S. put up outstanding numbers and the watch and accessories lines -- total full price -- sold extremely well.
But Apple is the outlier.
Going forward I believe we are going to have to differentiate retail and recognize that Wall Street tolerates nothing when it comes to anything disappointing and is willing to extrapolate the worst to companies that even raised numbers, as Kohl's did.
It's a new economy, one that is driven by people being able to price compare on their cellphone and create a degree of discipline and scrutiny that every retailer must live with and adapt to or suffer the consequences, whether it be bankruptcy in the case of Sears (SHLD) , mortal wounds in the case of J.C. Penney (JCP) , or hideous stock declines on a not-so-hot guide down by Macy's.