Retail Earnings Report: What to Expect from Kohl’s, Macy’s, and More
As the holiday shopping season approaches, the financial world turns its attention to the quarterly earnings reports of major retailers. This week, we’ll see critical results from six industry leaders: Kohl’s, Macy’s, Best Buy, Dick’s Sporting Goods, Burlington Stores, and Nordstrom. With earnings reports scheduled for November 26th, the insights garnered could provide a vital pulse check on consumer spending trends, especially as we transition into a season usually defined by high retail performance.
Understanding Retail Dynamics: A Tale of Two Companies
Notably, this earnings season will shed light on two divergent retail trajectories: Kohl’s (KSS) and Burlington Stores (BURL). Kohl’s has faced a staggering 40% decline year to date, while Burlington has shown a 47% increase in the same time frame. This stark contrast raises critical questions about consumer preferences and the health of the retail sector as a whole.
It’s essential to recognize that these retailers not only represent different performance metrics but also attract distinct customer demographics. While Kohl’s has struggled to regain momentum post-pandemic, Burlington has flourished, adapting its strategy and appealing to a more brand-conscious and slightly more affluent audience.
The Data Tells a Story
According to an analysis from the New York Federal Reserve, household debt has increased modestly in the third quarter of this year, but delinquency rates remain elevated. This financial backdrop complicates the retail sector’s recovery. It’s vital to note that while both brands experienced a revenue decline during the pandemic, Bordorinc has rebounded with consistent growth, whereas Kohl’s has merely held its earnings per share (EPS) steady amid falling revenues.
A deeper dive into valuations shows that Kohl’s is currently trading at a price-to-sales ratio of 0.11 and less than 10 times forward earnings estimates, suggesting it could be undervalued. Conversely, Burlington’s pricier 1.8 price-to-sales ratio and 36 times forward earnings estimates present a more optimistic outlook, albeit with higher expectations for maintaining growth.
The Role of Alternative Data in Investment Decisions
An emerging trend that investors should take into account is the influence of alternative data in market analysis. This non-traditional data includes insights gathered from diverse sources such as mobile phone tracking, credit card transactions, and satellite imagery of retail locations. One significant provider of this data, Placer.ai, shows that Burlington has seen a 5% year-over-year increase in customer foot traffic, while Kohl’s has faced a 3.2% decline. This could help explain the recent divergence in stock performance—Burlington’s stocks have rallied while Kohl’s has dipped.
Traders must pay attention to these signals, especially leading up to earnings reports. The current hype around both companies suggests that many institutional investors may have already adjusted their positions, potentially leading to muted market reactions once the earnings are released.
Trading Strategies Ahead of Earnings
For those looking to engage in options trading around these earnings reports, here’s a breakdown of potential strategies for both Burlington and Kohl’s:
Burlington Stores (BURL): Anticipating an 8% Move
To play for a modest move of 8% or less in Burlington, a strangle swap can be an effective strategy:
- Sell BURL Nov. 29 $260 put
- Buy BURL March 21 $260 put
- Sell BURL Nov. 29 $320 call
- Buy BURL March 21 $320 call
This position enables you to benefit from a limited movement while mitigating significant risk.
Kohl’s (KSS): A Nuanced Approach for 11%
Given Kohl’s lower price point, we suggest a slightly more nuanced strategy that still aligns with expectations for an 11% move or less:
- Buy KSS Apr. 17 $15 put
- Sell KSS Nov. 29 $15.50 put
- Sell KSS Nov. 29 $18.50 call
- Buy KSS Apr. 17 $20 call
This approach offers a balanced risk-reward setup in a volatile environment.
Conclusion: The Bigger Picture of Retail Investment
As this earnings week unfolds, the results will not only inform us about individual retailer performance but also about broader consumer sentiment going into the holidays. At Extreme Investor Network, we believe in empowering our readers with unique insights that go beyond the surface. Understanding the implications of consumer behavior, coupled with the strategic use of alternative data, can significantly enhance your investment approach.
Stay tuned for our analysis post-earnings as we dive deeper into what these results mean for the retail landscape and offer strategic guidance to help you navigate the complexities of investing. Happy investing!