Retail: good news or bad news?
There was mostly good news from retailers this morning, as sales for the quarter were much stronger than expected for those that reported:
Lowe's up 7.4%
Dollar Tree up 5.6%
TJX up 4%
Target up 3.8%
Still, there was some concern. Target, Dollar Tree, and TJX all gave guidance below expectations. Lumber Liquidators guided down for the fiscal year. On Tuesday, Steve Madden, Macy's, and Home Depot all guided full year earnings guidance below expectations.
This has created some anxiety among traders and analysts.
My take: For the moment, relax. Here's why:
1) Guidance has been lower than expectations: they haven't lowered guidance. That's an important difference.
2) This seems like a lot of typically conservative guidance. Target, for example, has a new CEO, and they are likely being conservative.
TJX said it's paying its employees more, which will be a modest hit to earnings, but executives reiterated long-term growth. They also raised the dividend.
Companies like Kohl's and JC Penney are seeing a bounce off the bottom, likely because of lower gas prices and slow improvement in business models.
3) The solid sales numbers reflect underlying good news. Inventories are good. The West Coast port strike is a short-term issue. Gasoline has stopped going down, but is much better than a year ago. The macros are good: more jobs, modest wage growth.
Want something to worry about? I've been saying for some time that retailers are not cheap. Lowe's, for example, is trading for 23 times forward earnings. So is Home Depot. That is high by historical standards.