Filed Under:
Tickers in this Article: WMT, TGT, COST, M, SKS, JWN, KSS, JCP
What a non-difference a year makes. At this time in 2007, retailers were as nervous as a gymnophobe - or anyone, really - encountering a naked Steve Guttenberg jogging through Central Park. After National Retail Federation (NRF) Chief Economist Rosalind Wells warned of a "somewhat challenging holiday season" before the first shipments of eggnog had even begun to hit grocery store shelves last year, investors fled from retail stocks like they were, well, a thousand little naked Steve Guttenbergs.

Christmas Past
From Sept. 20, 2007, when Wells first issued her dire prophecy, until Nov. 21, 2007 (the day before Thanksgiving), Target (NYSE:TGT), Nordstrom (NYSE:JWN), Kohl's (NYSE:KSS) and J.C. Penney (NYSE:JCP) all experienced double-digit equity losses. In fact, among the major retailers, only Saks (NYSE:SKS), Costco (Nasdaq:COST) and Wal-Mart (NYSE:WMT) were able to buck the holly, yet not-so-jolly trend - Saks and Costco on the strength of solid third-quarter earnings and Wal-Mart thanks to aggressive early price-cutting.

Yet, from the day after the turkey was first carved (Black Friday to some, Mylanta Friday to me) until Christmas Eve (when I traditionally begin my holiday shopping), retail stocks did an about-face and began to recover. After plunging nearly 40% from Sept. 20 to Nov. 21, 2007, J.C. Penney closed almost 15% higher a month later; Nordstrom, which had dropped 31% amid the pre-holiday gloom and doom, advanced 8% by the time Santa hitched up his sleigh last winter. (To learn more about Black Friday, read the answer to our frequently asked question What is Black Friday?)

Most impressive, however, was that this yuletide rally occurred despite the fact that holiday shopping totals were actually worse than projected. According to the NRF, November and December sales totaled just $460.24 billion in 2007 - a far cry from the predicted $474.5 billion that had prompted Wells' pessimism in the first place, and the lowest percentage sales increase in five years.

Christmas Present
Still, the reason for the rebound was simple: the markets factor in diminished expectations, but once the bar has been lowered, everybody tends to get credit for subsequently clearing it. Thus, I see a similar scenario for retailers unfolding this year. Already, the NRF has hinted at the slowest holiday sales since 2003 and the Consumer Confidence Index (CCI) is at its lowest point since the price of milk was measured in furs. Meanwhile, retail stocks are proving Galileo Galilei's theory that gravitational acceleration is independent of mass, as companies of all shapes and sizes have seen their equity values fall faster than my will to live upon hearing that the New Kids on the Block were reuniting.

Since the end of September, Nordstrom is down 59.3%, Saks has plunged 56.1% and J.C. Penney has dropped 47.8%. It's gotten so bad that, when Macy's announced a third-quarter loss of $44 million on Nov. 12, shares in the company actually traded higher for awhile, before calmer heads prevailed.

Christmas Future
In other words, things couldn't look worse right now, which is precisely why buying retail stocks might make a lot of dollars and cents for contrarian holiday shoppers. And if you've already got some of these lumps of coal in your portfolio, hold on to them. Over time, they might just turn into diamonds.

Be sure to read our related article Analyzing Retail Stocks, to learn more about what to look for when thinking about companies in this sector.

comments powered by Disqus

Trading Center