Owning retail stocks this earnings season has been painful. Not only are issues getting annihilated off their own reports, but they are also getting pounded when their peers report disappointing results, both before and after their own results have been posted.
One such issue is Best Buy Inc. BBY, which announced first-quarter results before the open Tuesday and is battling to stay positive.
The price action following Best Buy's report makes it the PreMarket Prep Stock of the Day.
The Walmart-Target Effect: On May 17, Walmart Inc. WMT got the retail pendulum swinging in the wrong direction. Followings its first-quarter report, it had its worst day since 1987, swooning from $148.21 to $131.25. The move continued in a big way, as the issue did not find a bottom until Friday at $117.27. It has rebounded to the $123 area.
Although Best Buy was only slightly in the red for that session, the next day Target Inc. TGT delivered the knockout punch for the sector, falling from $215.28 to $161.61. Target has yet to find a bottom, as it made a new low for the move in Tuesday’s session at $145.86 and is not trading far from it.
On May 18, Best Buy succumbed to the retail selling pressure, falling from $84.50 to $75.21. The issue bottomed with S&P 500 on Friday at $69.07 and revisited that low in Monday’s session, finding buyers at $69.26.
Best Buy's Mixed Q1 Report: Before the open Tuesday, the company reported earnings of $1.57 per share, which missed the analyst consensus estimate of $1.63 by 3.68%.
This is a 29.6% decrease from earnings of $2.23 per share from the same period last year. The company reported quarterly sales of $10.65 billion, which beat the analyst consensus estimate of $10.43 billion by 2.08%. This is an 8.51% decrease over sales of $11.64 billion in the same period last year.
PreMarket Prep's Take: When the issue was being covered on the show it was trading at the $71 area. Co-host Dennis Dick was in no rush to get long the issue — or any issue, for that matter. He stated after observing the initial reaction to the report: WWhen a stock starts moving higher off a report, it goes up for 5 minutes and comes right back down."
When a company misses, "it goes down for days on end,” Dick said. He was referring to the quick move to $80 (Monday’s close was $72.59) and right back down to $71.
The author of this article stressed the importance of holding the potential double bottom at the $69 area. A potential resistance was not as obvious, but investors that wanted to sell near the premarket were warned there was very little chance the issue would revisit that level.
BBY Price Action: Following a slightly higher opening price, the issue had follow-through on the upside until it peaked at $75.90 and reversed course. The ensuing decline took the issue beyond the close but has bottomed at $71.48 and was trading in the $73 handle late in the session.
The discussion on the issue from Tuesday’s show can be found here:
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