Holiday Sales Off to a Mixed Start -- Here Are the Solid Performers So Far

Author:
Publish date:
Video Duration:
0

It's been a rough start to the holiday season for many retailers, according to analysts, but the digitally-focused ones seem to be doing fine.

Black Friday results are in. The day pulled in $7.2 billion, rising 14% year-over-year, according to Salesforce data. And Thanksgiving online revenue hit a record high of $4.1 billion, rising 17%. But this doesn't mean spending is meeting expectations and analysts are already noting they see heavy discounting at retailers. And while the online revenue has missed expectations according to one analyst, it's still the online players that are looking stronger for now.

Heavy Discounting

"For most of the retailers under our coverage, discounts for the Thanksgiving to Cyber Monday period are steeper than last year," wrote Wedbush Securities analyst Jen Redding in a note.

For Nordstrom (JWN) - Get Report , "We see an uptick in markdowns, as we note that the 6 days of extra 30% off clearance was raised to 3 days of extra 30% off and 1 day of extra 50% off clearance," Redding said. Nordstrom is coming off of a strong third quarter, in which it reported better-than-expected revenue, driven by 7% growth in digital sales, year-over-year. That drove the stock up 11.7% the day after earnings, as investors now hope for a new era of growth from the recently struggling retailer. "We were surprised to see Nordstrom rack on the naughty list, given strength in the business articulated on the recent earnings," Redding said.

American Eagle (AEO) - Get Report is also seeing markdowns. "Promotional trends at AEO look to be roughly incremental over last year on an overall basis for Black Friday," Redding said. "We see an incremental "extra 10% over $125+ online only" at both brands and new deals on bralettes at Aerie as notable, and also see new deals on sweatshirts across brand."

She added that Urban Outfitters (URBN) - Get Report is seeing heavy promotions. "We see risk over the Black Friday selling period, as "BOGO 50% off online & instores" lasted one day longer, and the company added free shipping on all orders this year."

Morgan Stanley analyst Kimberly Greenberger wrote in a note that for Kohl's (KSS) - Get Report and Macy's (M) - Get Report , "We see merchandise margin risk should markdown[s] accelerate year-over-year in December weeks one to three." She added that "we remain skeptical week four [foot] traffic recovery was sufficient to bring November in line with Q1-Q3 2019." Foot traffic is often correlated with consumer demand. foot traffic declined 5% across Greenberger's covered companies for the first three quarters.

The analysts noted that the short holiday season -- six days shorter than last year due to the late date for Thanksgiving -- has raised the pressure on retailers. "We see retailers focused on discounting to clear goods quickly compared to last year's strategy of putting more weight into customer loyalty program[s]," Redding said. The U.S. consumer has been strong in 2019 and many have noted the holiday season may be impacted by the shorter-than-usual schedule this year.

Online & Hardlines Are Shining A Bit Brighter

The digitally focused players are showing better ability to capture the holiday shopper.

"We believe markdown SKUs and discount depth ran comparable to last year, but that the messaging drove record traffic and conversion to lululemon.com, likely resulting in strength into the holiday for both product margin and sales," Redding said. Lulu (LULU) - Get Report is known as a digitally-driven brand. 

Foot traffic declined 28% in the first three weeks of November, according to Greenberger's estimates. Of course online sales grew, although Greenberger notes that they have so far missed consensus expectations by 3%. 

She also said hardliners -- or big box retailers -- are "off to a solid start." Walmart (WMT) - Get Report and Target (TGT) - Get Report are showing strength, she said. 

Analysts at CFRA had said before Thanksgiving that retailers selling consumer staples might perform better than discretionaries, partly due to price increase in light of tariffs. 

KSS is a holding in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells KSS? Learn more now.