Online shopping has damaged or run out of business many retailers. Those who have survived have typically added an online platform and streamlined their operations. Now one of the flagship retailers, Macy’s, is predicting slow holiday sales. The New York Times writes about Macy’s holiday alarm.
When Macy’s, a store closely associated with Christmas, says there is trouble brewing ahead of the holidays, it is enough to send the world of shopping into a tailspin.
Macy’s shares plunged about 14 percent, dragging other retailers down, too. The Hudson’s Bay Company, which owns Saks Fifth Avenue and Lord & Taylor, fell 5 percent, as did Kohl’s. Burlington Stores fell about 7 percent.
The stock is already down but may fall farther if predictions of a low profit holiday come true. The question for stock traders is how far to short Macy’s and other retailers. In fact, are all retailers in trouble to the same degree?
Unexpectedly Good Results
When Macy’s predicted a dire holiday shopping season every retailer felt the pain, including low price retailer Kohl’s. However, Kohl’s stock jumped 7% when it beat expectations and posted same store sales growth of 1%. This is not fantastic but compared to the other retailers Kohl’s is shining. CNBC reports on Kohl’s.
Shares of Kohl’s jumped 7 percent on Thursday, after the low-price department store topped Wall Street’s sales and earnings forecasts.
The news was a welcome surprise to investors following Macy’s disappointing third-quarter results, announced one day earlier, which had sent shares of Kohl’s 5 percent lower in sympathy.
Though Kohl’s results were not blockbuster by any means – same-store sales increased by 1 percent, despite posting a 1.8 percent decline one year ago – they did indicate that parts of its reinvention strategy are starting to take hold.
Among them: A revamped loyalty program that counts 34 million members, nearly double the number it had at this point last year. In addition to boasting twice as many members, these customers are entering the holiday shopping season having already accrued points, giving them more incentive to shop at Kohl’s.
It would appear that there are retail strategies that still produce profits in the online shopping era. If Macy’s is not in tune with these strategies how far to short Macy’s stock is a good question.
How about Amazon?
Rather than shorting Macy’s which has been hurt by the likes of Amazon.com how about shorting Amazon.com? USA Today brings up an interesting fact. Amazon.com is now the most costly stock as it trades at 942 times diluted earnings.
The online retailer’s shares are now trading for 942 times diluted earnings over the past twelve months, making them the most expensive stock in the Standard & Poor’s 500, according to a USA TODAY analysis of data from S&P Capital IQ. It’s also the only stock in the index that has currently cracked the 900 price-to-earnings barrier.
Amazon is certainly in a class of its own when it comes to valuation, but it isn’t alone in pushing the measure. There are now 14 stocks in the S&P 500, including video streamer Netflix (NFLX) and social media king Facebook (FB), that are trading for 100 times or more their diluted earnings the past 12 months before extraordinary items.
Some investors seem to have forgotten 2008. Amazon was trading for $50 a share ten years ago, dipped only slightly during the depths of the recession and now trades at over $600 a share. Investors are paying for that growth and the expectation of continued growth at the same pace. This strategy works for a time but always backfires when the business model runs out of room to operate. Our opinion is that you may wish to wonder how far to short Macy’s you should be doing the same thinking about overpriced Amazon.com.
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