Analysts ID Retail Winners, Losers From Holiday Sales Numbers

Retail stocks are off to a hot start to 2019 despite mixed holiday sales numbers. Several Wall Street analysts weighed in on retail sales numbers from top stocks. Here’s a sampling of what they said. 

Macy’s, Kohl’s Disappoint

Deutsche Bank analyst Paul Trussell said both Macy’s Inc M and Kohl’s Corporation KSS stood out as underperformers, with holiday sales comps up just 1.5 percent and 1.2 percent, respectively.

“While management teams are highlighting that they ‘comped the comp,’ investors are focused on compares becoming more difficult ahead, margin pressure from discounting that was necessary to drive holiday cops (particularly at M) and ongoing cost pressures such as labor and digital investments that likely prevent EBIT dollar growth at such low levels of top-line expansion," the analyst said in a note. 

Morgan Stanley analyst Kimberly Greenberger said Macy’s poor performance overshadowed what were otherwise solid holiday sales numbers from Kohl’s. Greenberger said Macy’s Q4 gross margins were severely pressured. “More worrisome,however, was lowered 2018 earnings guidance, despite an increase in credit revenue guidance ($755-765M vs. $740-755M prior) and asset sales gains (+$360M vs. $300-325M prior), implying that the core retail business is especially underperforming," she said. 

Target, Costco Impress

KeyBanc Capital Markets analyst Edward Yruma said Target Corporation TGT put up impressive holiday growth, reporting 5.7-percent same-store sales growth. “At 12x 2019 P/E (8.4x discount to WMT), we do not think that TGT’s valuation appropriately reflects the ongoing progress within the business,” Yruma said. 

Costco Wholesale Corporation COST holiday same-store sales were also up a solid 7 percent, and Bank of America Merrill Lynch analyst Robert Ohmes said Costco remains one of the major beneficiaries of a long-term period of growth in discount retail.

“COST ecommerce sales momentum continues, with F1Q growth of 26.2 percent ex-FX, helped by better online merchandising and new, higher-end brands, digital marketing and new delivery options, including same-day delivery with Instacart and Shipt." 

Ratings And Targets

• Morgan Stanley has an Underweight rating and $51 price target for Kohl’s and an Underweight rating and $23 price target for Macy’s.
• KeyBanc has an Overweight rating and $110 price target for Target.
• Bank of America has a Buy rating and $225 price target for Costco.

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