Retailers enjoyed a nice rally on Tuesday as they basked in the afterglow of Walmart's solid third-quarter earnings report. Walmart delivered earnings per share of $1.50, which beat the consensus estimate by 18 cents. Revenue came in at $152.8 billion, $6 billion ahead of estimates. New guidance for the fourth quarter also was also a bit better than previous guidance; that included reducing an expected year-over-year decline in operating income to a range of 6.5% to 7.5% from a range of 9% to 11% and an expected decline in earnings per share to a range of 6% to 7% versus the consensus of a 9.5% decrease.
Walmart is a case of the fourth quarter not being great versus last year, but not as bad as expected. That's about all you need these days to provide a shot in the arm to retail stocks, many of which have had an awful 2022.
However, the opposite also is the case as seen today in the shares of Target, which traders are hammering after the big retailer once again disappointed investors by forecasting a drop in holiday sales and announcing a huge cost-cutting plan. That revelation is producing a decline in other retailer stocks, including Dollar Tree (DLTR) and Dollar General (DG) , which have yet to report their third-quarter results.
This year has been especially hard for small specialty retailers. Take Fossil Group (FOSL) , a member of my 2022 Triple Net Active Portfolio and a name I've owned a couple times over the past several years. Fossil Group shares are down 54% year to date though they have rallied 34% since the Sept. 6 low that occurred after the company was dropped from the S&P 600. Other small year-to-date losers include Vera Bradley (VRA) (down 58%), Big 5 Sporting Goods (BGFV) (down 32.5%), Lands' End (LE) (down 43%), MarineMax (HZO) (down 43%) and Sally Beauty Holdings (SBH) (down 34%) to name a handful.
Some bigger names have also struggled, including Target, Kohl's (KSS) (down 35%) and retail's 800-pound gorilla Amazon (AMZN) (down 42%). Midsize strugglers include Bed Bath & Beyond (BBBY) (down 75%), Best Buy (BBY) (down 26%), and Five Below (FIVE) (down 24%).
Black Friday should be very interesting this year to say the least, and we'll see if "not as bad as expected" will be the catalyst for a retail Santa Claus rally.