Of all the contrary calls I have seen, the one by J.P. Morgan's Matthew Boss, the acknowledged dean of the retail group, could take the cake.
If you don't know Boss, he does a ton of fieldwork to find out how retailers are doing. His work is coming up with some pretty shocking results. He's saying that his work shows that a number of store chains could have better-than-expected earnings, including some that will be shockingly better.
He says that 76% of companies across his universe of department store and specialty softlines should meet or beat expectations, with stores like Macy's (M) , Kohl's (KSS) and most important, Nordstrom (JWN) , which has been a huge underperformer that he now thinks can have a very strong quarter.
Let's take Nordstrom. He points out that this stock has underperformed the S&P 500 by an incredible 45% over the last year. We know the mall is hurting, but he points out that 95% of Nordstrom's stores are in A malls, which have held up very well. E-commerce? Coming on strong. And it has accelerating free cash flow. He says it is still a "show me" strategy but the risk reward considering its decline makes it very attractive because he sees signs of structural change. With a 3.6% yield and Boss' same store sales projection of 2.3% versus the street at 1.6% that could ignite the stock.
Boss has a sell on Macy's but he still raised his same store sales to minus 1.5% versus minus 2.5%. He says it offers incremental upside but I have to remind you that it yields 8.7% and the balance sheet keeps improving.
The one I am most intrigued by is Kohl's, which my charitable trust owns. He says that same-store sales could rise as much as plus 1.5%. The Street's 0.4%. That means Kohl's can beat or meet Street earnings estimates which would be shocking itself. The Amazon partnership, where you can return goods by going to a Kohl's, is apparently working which is what my survey on Twitter had to say. The yield here? A juicy 5.36% with little risk to the dividend's size.
Why is all of this so out of sync with what the Street's saying? Because we keep hearing from so many other analysts that this is the most promotional holiday season in ages. Plus there was a shortened period between Thanksgiving and Christmas. They were supposed to have combined to cause shortfalls across the board. That flies in the face of Boss' "robust holiday" scenario.
What's going on? Boss singles out the 50-year low in unemployment as a spur to sales. It does feel a little counterintuitive considering how well Walmart, Target and Amazon are doing.
When I read the piece I was somewhat skeptical. For example I have been selling the stock of Kohl's for my charitable trust expecting the company any minute to tell us how horrible the Christmas season is. We stopped selling immediately when we read this piece.
These down-and-outers are down for a reason: terrible execution. But if any of these pans out you could get a rocket ship effect with Nordstrom being the best way to play the holiday season renaissance. Given Boss's record, I have to go with his call.