Overall, retailers have performed well this earnings season. The Dow Jones U.S. Retail Index ($DJUSRT) has rallied more than 11% since October 1. Macy’s, Kohl’s, and Victoria’s Secret all lifted forward guidance. With so much nervousness around supply chain issues, this is good news for getting back to normal.
The ability to pass on costs has been a theme through this earnings season and so has the semiconductor shortages. The high demand for semiconductors was reflected in Nvidia’s (NASDAQ:NVDA) earnings report. The company beat on earnings and revenue prompting a premarket rally of more than 8%.
Another theme we’ve seen during this earnings season is labor shortages. Deere (NYSE:DE) appears to have resolved its labor dispute by providing higher wages to its union workers. The agreement should end a month-long strike. The stock is up more than 2.8% on the news.
Don’t Discount Retailers
On Wednesday, TJX Companies (NYSE:TJX) rallied more than 7% on better-than-expected earnings because of a 14% increase in same-store sales year over year. This makes two strong quarters in a row as shoppers return to in-store buying.
Looking at the chart below, many of these stocks have moved mostly sideways for the year despite some volatility. These companies haven’t experienced the recovery of other big box stores because they don’t have a large online presence. They rely heavily on traffic through their brick-and-mortar markets. This means they struggled during the pandemic but could benefit from the reopening.
On Tuesday, Dollar Tree rallied on news that activist investor Mantle Ridge had taken a $1.8 billion stake in the company. Mantle Ridge is credited with helping to engineer a turnaround for Dollar General.
Outside of the higher price point, Five Below is different than the other groups because it focuses on trendier merchandise that targets pre-teens and teenagers. However, the company is still having to deal with inflation and recently launched its Five Beyond section for items that cost more than $5 in 270 of its stores.
Many analysts are looking to eBay and Etsy as possible beneficiaries of the cramped supply chain because many users of these platforms locally source their materials and products. eBay has been around the longest, so you might think it’s best positioned for thrift shoppers. However, the company has been losing ground to its competitors.
Etsy is working hard at taking eBay’s market share. Etsy’s platform allows people to sell their handmade items, vintage, and on-trend clothing, jewelry, and more. At the first of the month, it announced strong earnings, but the stock still fell. However, it rallied in the following days as analysts started upgrading it. Since its earnings announcement, the stock has risen nearly 20%.
However, no one really questions Amazon’s dominance, but recently people are questioning their ability to deliver for the holidays. At the end of October, the company announced that it was spending billions of dollars to avoid holiday delays. Similarly, Walmart told investors during its earnings call earlier this week that its stores were stocked and ready for the holidays.
While Amazon may dominate online, Walmart has 4,742 Walmart stores and 600 Sam’s Clubs in the United States, and an additional 5,224 international stores. Amazon has 89 stores plus 589 Whole Foods grocery stores. If consumers want to get out of the house to do their holiday shopping, Walmart could have an advantage in the battle of these two behemoths.
TD Ameritrade® commentary for educational purposes only. Member SIPC.
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