Posted 5th January 2017
• Shorting the retail sector
• US department stores hit by weak sales
• PLUS: Gold stopped out for a profit
We saw yesterday how clothes retailer, Next (NXT), took a beating after a profit warning in its 4th quarter trading update.
The stock fell more than 15% on the day. And looking at the technical picture on that chart I showed you yesterday, there could well be worse to come. But it’s not time to rush in.
I’m watching this one for the right risk/reward set-up to trade it from the short side and make money as the price falls.
And as I mentioned yesterday, retail is one sector where there could be plenty of shorting opportunities. I’m thinking in particular of those retailers that rely heavily on the high street. They’re getting squeezed by the online players.
It’s not just here in the UK, either. This is a global theme right now – and one we’ll look to trade in Profit Watch Pro in this first quarter of 2017.
Over the Christmas break, my children and I watched the film Miracle on 34th Street, the original one with Maureen O’Hara and a young Natalie Wood, rather than the 90s remake.
To start with, my kids moaned about it being in black and white, of course. But by the end they loved the story.
It’s about an old man hired to play the part of Santa Claus at New York’s famous Macy’s department store. The store’s marketing idea is that the Santa should direct the parents of the children who meet him to buy gifts from Macy’s.
He does the opposite and refers them to competitors, which creates good will with the customer and results in Macy’s reputation soaring and boosting Christmas sales.
OK, I’ve gone off-track a little there, but I was reminded of the film by seeing the news just now of Macy’s Inc’s (M) latest trading update.
Bloomberg reports that the iconic retail group has, just like Next, announced sluggish sales in the Christmas period. Sales for November and December were down 2.1% compared to the same period last year and the company warns that full-year profits will now miss forecasts.
It’s no surprise to hear the company is struggling if you see its price chart over the past few years (below). And Macy’s has known about its challenges for a while and had already announced cost cutting measures before Christmas. But this latest evidence of poor sales has rung alarm bells again.
It’s now planning to close 100 stores across America, slashing 6,000 jobs and making other cost savings. The market didn’t like what it heard.
The shares are down 14% following the announcement and trading at levels not seen since before last summer…
If that support line at 2985 gives way, Macy’s could be trading at 2600 and even 2400 within weeks.
It’s the same story at Macy’s competitor, Kohl’s Corporation (KSS), which also announced falling Christmas sales figures and warned on full-year profits. In fact, Kohl’s took an even bigger hit, the stock price slumping 18%. JC Penney (JCP), another department store operator, shed almost 7% as traders anticipate similar poor results when it releases its numbers any day now.
I’m looking for a way to play this bad shop sales theme. I’m not convinced it’s something that is affecting all retailers (but let’s wait to see some online sales numbers). It’s possibly more affecting the ones with a large high street – or mall – presence, rather than the online shopping experience.
Reuters reports that: “Department stores have been hit severely by changing customer habits – people are preferring to shop at online stores such as Amazon.com rather than at brick-and-mortar stores.
“Shoppers are also spending more on experiences such as dining out and traveling, and big-ticket items such as homes than on apparel – a key sales driver for department stores.”
I know that’s true for me. Although I spent a lot on last minute luxuries in some of the high street stores like Marks and Spencer before Christmas, I splurged far more online at Amazon and the like. You get better deals and it’s a lot less hassle. And that seems to be what people like to do more and more. How about you?
I think there’s some legs in this theme. I’ve been looking at an exchange traded fund that gives exposure to the US retail sector. It’s a way to play the theme without picking just one stock.
But I’ll also see if there’s an opportunity in some of these individual stocks. It’s all about the charts and what they are saying. And about the right risk versus reward profile.
I’m adding lots of ideas to my watch list this first week of the year. We should be ready to trade soon, if not this week, then I’m sure we’ll be in the market next week.
Pro readers have just got stopped out on our gold trade at $1,169 after the dollar slumped and gold shot higher overnight. That’s 26 points of profit from our entry at $1,195, but we took profits on part of the trade earlier.
A nice little trade and we may well have another go at this one soon – if it gets a little higher. To me, not that much has changed about the outlook for the dollar and for gold.
This latest move higher could just be a retracement before the downtrend resumes and gold has that rendezvous with the $1,050 level…
I’m watching this one closely. If you want to know the precise levels when we enter the trade, get your name down for Profit Watch Pro.
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by Max Munroe
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by Ben Traynor
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