These Stocks Have Left Amazon Behind This Year -- Update
June 20 2018 - 4:59PM
Dow Jones News
By Akane Otani
Everyone knows that Amazon.com has left retailers for dead. Just
don't tell investors in some stocks of big store chains.
Shares of retailers are enjoying their biggest rally in years,
an unexpected turnaround fueled by strong earnings, buoyant
consumer confidence and a nationwide shopping spree.
The SPDR S&P Retail ETF is up 11% this year, more than
tripling the S&P 500's 3.5% gain. During Tuesday's market rout,
the retail ETF fell less than the broader market. Share prices of
department stores like Macy's Inc. and Dillard's Inc. have risen
more than 55% this year, even edging out Amazon.com's 50%
advance.
The sector's big gains represent an abrupt reversal from
previous years, when competition from e-commerce giants like Amazon
pounded many traditional retailers, everything from teen apparel to
companies making auto accessories. The S&P Retail Index had
underperformed the S&P 500 in four of the last five years.
Retail's sudden resurgence is sparking a debate over whether
flush-feeling consumers can keep the rally going, or if a series of
temporary factors boosted the stocks in a way that is likely to
fade in the second half of the year.
Some investors have found reasons to be optimistic. For one,
many retailers have posted better-than-expected earnings reports:
Macy's, Home Depot Inc. and Walmart Inc. all reporting same-store
sales rising in the latest quarter. That has lifted share prices
for some stocks whose valuations had fallen to single digits last
year.
Retail sales -- a measure of what Americans spend on everything
from cars to clothing to sporting goods -- also rose 0.8% last
month from a year earlier, according to the Commerce Department.
Analysts attributed the gains, which marked the biggest one-month
jump since November, to a combination of rising wages, low
unemployment and tax cuts that have left many Americans with more
money to spend -- all things that retailers hope will keep business
at their stores humming.
"It is nice to see that consumer confidence is improving...and
that [consumers are] voting on apparel certainly is a help in the
industry," said Fran Horowitz-Bonadies, chief executive officer of
Abercrombie & Fitch Co., on the firm's earnings call at the
start of the month.
Still, some analysts caution that retail's recent rebound could
be temporary, driven heavily by factors like one-time gains from
the U.S. tax overhaul rather than fundamental changes in the
industry.
"Retail has received a second wind from the tax cuts which we
think will ultimately fade," said Morgan Stanley analysts in a
recent report.
Some analysts are forecasting a steep deceleration in earnings
growth for the sector in the coming months. "If so, look for the
stocks to roll over as well," Morgan Stanley analysts wrote.
Other analysts point to the dollar as a reason why the rally may
not last. While many retailers cited dollar weakness as boosting
spending by foreign customers during the last quarter, the currency
has since rebounded. Further dollar gains would make retailers'
goods more expensive to customers abroad, potentially slowing sales
at companies with large multinational presences.
"People are saying, okay, these guys aren't going away now, so
after the tremendous pressure we saw in 2016 and 2017, a number of
those names are doing better," said Jim Tierney, chief investment
officer of concentrated U.S. growth at AllianceBernstein.
He remains cautious on retail in the longer term, despite this
year's comeback, likening its recent performance to a "dead cat
bounce": a short rebound following a sharp and prolonged
selloff.
Macy's, which fell 30% in 2017 even as the broader S&P 500
jumped 19%, has climbed 57% after closing dozens of stores while
sales at its remaining stores have rebounded. In May, the company
posted same-store sales that surpassed analysts' estimates, thanks
to a pickup in spending by international tourists, revamped shoe
and fine jewelry departments and increased spending on full-priced
goods by customers.
Specialty retailers have also fared well. Dick's Sporting Goods
Inc. is up 28% after losing 46% in 2017, buoyed by reports showing
its profits growing even as its hunting business suffered following
a decision to tighten gun policies. Teen retailers Abercrombie
& Fitch and American Eagle Outfitters Inc., which both posted
better-than-expected same-store sales for the latest quarter, have
risen more than 30% apiece.
Write to Akane Otani at akane.otani@wsj.com
(END) Dow Jones Newswires
June 20, 2018 16:44 ET (20:44 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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