The holiday shopping rush that kicked off on Friday is unlikely to bring much cheer to investors looking for a revival in retail stocks.
After months of uninspiring sales growth and recent disappointments from Macy's and Nordstrom, shareholders of apparel sellers have had little to be thankful for and face a challenging holiday season.
Those stocks have reflected a shift by consumers away from discretionary items like designer-label clothes and cosmetics toward smartphones, televisions, home goods and travel, as well as an ongoing migration to online spending.
Early indications suggested this year's holiday season was off to a slow start. Crowds were thin at U.S. stores and shopping malls in the early hours of Black Friday and on Thanksgiving evening, as shoppers responded to early holiday discounts with caution.
Macy's stock has plummeted 39 percent this year while Nordstrom is down 22 percent and Tiffany & Co is 23 percent lower - all far worse than the benchmark S&P 500 index's 1-percent gain.
On the other hand, Home Depot has surged 29 percent in 2015 and discount store Dollar Tree is up 6 percent.
The S&P 500 retail index has risen 27 percent this year, with much of that gain driven by its largest component, Amazon.com, which continues to undercut brick-and-mortar rivals and has seen its stock more than double this year.
Earnings expectations vary for the holiday shopping quarter; Lowe's on average is expected to grow its earnings by 29 percent from a year ago while videogame store GameStop is seen growing earnings by 9 percent, according to Thomson Reuters data.
Gap Inc, which warned this month about weak sales and a strong dollar, is seen posting a 24 percent drop in fourth-quarter earnings.
"You really have to bifurcate between the largely apparel retailers and hard-goods retailers," said Anthony Chukumba, an analyst at BB&T Capital Markets.
His top picks include discount retailer Big Lots as well as Best Buy, which specializes in the electronic goods consumers are buying these days and also has a compelling valuation at 12 times expected earnings. By comparison, Nordstrom trades around 17 times earnings and Target has a price-earnings ratio of 15.
Polls going into holiday season have been mixed: A Reuters/Ipsos survey found more people planned to cut holiday spending than to boost it, while Gallup reported Americans plan to spend an average of $830 each on gifts this season, up from $720 a year ago at this time.
U.S. retail sales edged up a meager 0.1 percent last month after staying unchanged in both September and August, according to the Commerce Department.
FBR technology analyst Daniel Ives and his team planned to visit at least 25 Best Buys and other big-box stores over the weekend in New York and other major cities to gauge consumer appetite for Microsoft's Xbox One game console and Apple's smartwatch, launched in April.
"It's not quantitative, but it gives you anecdotal data points that become part of the mosaic of your thesis about whether to be bullish or bearish on trends, names and products," Ives said.
Since 2008, early sales estimates following Black Friday and Cyber Monday have had little or no bearing on retail stock performance for the holiday quarter, according to a report by LPL financial.
The short-term performance of stocks in the week after Thanksgiving has also been similarly inconsistent.
For the past three years, Wal-Mart Stores has lost as much as 3.9 percent or gained as much as 2.6 percent in the week following Black Friday, according to Thomson Reuters data.
By comparison, the S&P 500 has been flat to up 0.5 percent in the week following Black Friday for the past three years.
Amazon.com's stock performance in the week following Thanksgiving has been even more erratic. It lost 8 percent last year, lost 2 percent in 2013 and jumped 5 percent in 2012.
Reuters
Sat Nov 28 2015
Women shop for handbags at Macy's Herald Square store during the early opening of the Black Friday sales in the Manhattan borough of New York. REUTERS/Andrew Kelly
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