Earnings Preview: Department Stores In Focus - M, JWN, KSS, JCP


Re-Tweet
Share on Facebook
Share on Google+
Share on LinkedIn

A quartet of retailers highlight this week's set of earnings reports.  The biggest of these is Macy's, which we discussed in-depth last week.  To sum up briefly: Macy's suffered a sharp stock decline in early January, when the department store chain issued a warning and announced a plan to lay off 10,000 employees.  However, there has been a partial recovery in February, amid reports that Canada's Hudson's Bay, which also owns Saks, has approached Macy's about a potential takeover.

This is all part of a generally bumpy few months for the retailing sector as a whole.  The retailing group received some positive attention going into the holiday shopping season, with many stocks rallying into early December.  However, signs that the Christmas shopping season was unusually weak sent shares tumbling and many iconic brands are now either in restructuring mode or looking to consolidate.

The troubles in the retail sector have been especially acute for department stores and mall-based retailers.  They have suffered both from the overall sluggish retail environment that marked the last holiday season and the ongoing shift from physical shopping to online purchases.  This puts increased focus on this week's batch of retailing reports.

Macy's Inc. (M)

February 21, Before the Market Open

For its part, Macy's has seen its Implied Volatility edge higher over the past week or so, building on a spike that took place in late January and early February amid the takeover rumors.  IV finished last week at 48.3, just off a peak reached November 4, ahead of its last earnings report.

The ATM Straddle premium for M for the February 24 expiration date is $2.43, or 7.5%.

Macy's has had some volatile post-earnings moves recently, with three out of the last five quarters seeing a substantial earnings-inspired move.  Last quarter, however, the move was relatively modest.  In general, the average absolute post-earnings move for M has been 10.2% over the past four quarters.  This compares to an average pre-earnings expectation of 6.8%.

Kohl's Corp. (KSS)

February 23, Before the Market Open

Implied Volatility for KSS has advanced steadily over the last four weeks or so.  It reached 47.0 on February 16, before ticking slightly off that level.  The recent peak represented the highest level since November.

The ATM Straddle premium for KSS for the February 24 expiration is $3.24, or 7.7%.

The last two earnings announcements for Kohl's prompted substantial stock rallies.  Both moves were notably higher than the pre-earnings expectations.  Prior to this, the post-earnings moves were at or below the pre-earnings expectations in the prior three quarters.  Looking at the numbers, the average absolute post-earnings move for KSS over the past four quarters is 9.9%, compared to an average pre-earnings expectation of about 9%.

Nordstrom, Inc. (JWN)

February 23, After the Market Close

Of course, Nordstrom has been in the news lately for reasons outside of the typical confines of Wall Street headlines.  The company dropped the clothing and accessory line of President Donald Trump's daughter, Ivanka.  The decision prompted the president to tweet about the company.  The presidential spotlight seems to have had little impact on the stock, but shares are down sharply since early December, a move mirrored by many of its peers in the retail sector.

Shares finished last week at $45.69, compared to a December closing high of $61.49.

Implied Volatility for JWN began rising in late January and has advanced through February.  It reached 52.6 on February 17, its highest level since just after its last earnings report in November.

The ATM Straddle premium for the March 17 expiration is $5.32, or 11.6%.

Nordstrom has seen more mild post-earnings moves than expected recently, with three out of the last four quarterly reports coming with more modest moves than were expected going into the announcement.  The average absolute post-earnings move for JWN over the last 4 quarters is 8.2%.  This compares to an average pre-earnings expectation of 9.2%.

 

J.C. Penney Co. Inc. (JCP)

February 24, Before the Market Open

J.C. Penney has seen a more modest relative increase in its Implied Volatility compared to the other stocks on this list.  The figure has moved higher over the last few weeks, reaching 59.7 last Friday.  This was the highest level since January, when the stock fell in the wake of the release of weak holiday-season sales.  The company said comparable store sales for the November and December period were down 0.8% compared to last year.

The stock has recovered a bit since January, but is still off the near-term peak it reached in early December.

For the February 24 expiration, JCP has an ATM Straddle premium of $0.63, or 8.9%.

Post-earnings volatility for JCP has underperformed expectations for the past three quarters.  For the last four quarters as a whole, the average absolute post-earnings move for the stock has been 6.9%.  This is well below the average pre-report expectation of about 10.1%.