Jefferies Is Bullish On Retail In 2015, Sees The Fed As A Risk

Jefferies issued a Q4 Checkpoint and Retail Outlook on Wednesday and expected good holiday results with strong retail sales in 2015.

“This optimism stems from steady improvement in y-y growth rates for jobs, wages, credit and home prices. Consumer confidence has risen and lower gas prices should also help. However, the prospects of a less accommodative Fed could lead to relative underperformance for this early cycle group in 2015,” according to analyst Daniel Binder.

The firm's “field checks indicate the holiday season started off well in November with pre-Thanksgiving and Thanksgiving Day weekend sales. As noted in our Black Friday report, several retailers were slightly less aggressive on BF based on lower average discounts across many of the circulars. Post TG weekend, we believe traffic hit a lull, but then improved nicely in the week before Christmas, to finish up with a good holiday season overall.”

Binder believed Best Buy Co Inc BBY “sales benefited from product cycles across the store including TV, mobile, gaming, computing and appliances. Our checks also pointed to improved product availability in mobile, so we are optimistic that this can become a comp contributor in Q4.”

Binder also thought that Five Below Inc FIVE “can beat low expectations. Based on our field checks, we think the company had a good holiday season and should be able to beat the 4 percent comp plan. We believe FIVE benefited from a strong product offering, great values and better weather y-y.”

Field checks also showed strength for Hold-rated Wal-Mart Stores, Inc. WMT, Target Corporation TGT and Costco Wholesale Corporation COST.

“We are bullish on the macro and top-line outlook for the broader retail industry, but this also means the case is strengthened for the Fed to raise rates later this year...A rising Fed rate environment does not bode well for early cycle groups like retail and we often see relative underperformance caused by sector rotation,” Binder concluded.