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Retailers Move Market?

Wednesday, 3 Dec 2008 | 6:42 PM ET

If you think navigating the mall during the holidays is tough, just try trading the retailers. It’s about as easy as finding a parking space close to the door.


But it seems likely that Thursday's retail numbers will likely move at least a few stocks in the sector and we’d never leave you to fend for yourself. Here’s some insight.

The Expectations

Sales during last week's Black Friday, the traditional kickoff of the holiday shopping season, were better than many analysts expected. But the growth likely came at the expense of margins as stores cut prices aggressively.

Retailers' Forecast
Retailers will take center stage tomorrow, with the Fast Money team and Stacey Gilbert, Susquehanna Capital Group.

"It seems like everything is about price point right now. If you weren't on sale, you're probably not selling right now," says Ken Perkins, president of Retail Metrics.

That means investors should not only watch forecasts when retailers report November sales on Thursday, but also for comments on margins and earnings.

The Trade

If you’re looking for a trade, Susquehanna strategist Stacey Gilbert has been watching the options action in the sector and she has some ideas.

Gilbert tells Fast Money that she’s seeing bullish volatility buying in Gap Inc.ahead of their numbers. “December call buyers are gobbling up the 12 ½ calls,” she says. “There’s definitely an argument to be made that Gap has cash and it’s an interesting name during hard times.”

Other names Gilbert recommends watching including Abercrombie and Ross Stores .

A Dud November

The timing of the U.S. Thanksgiving holiday, which fell later in the month this year, probably hurt sales, analysts said. Mild weather cut into sales of winter apparel.

"Even in normal circumstances, the loss of a week of post-Thanksgiving sales would have resulted in a weak November," Brean Murray, Carret & Co analyst Eric Beder said in a research note.

"When the current economic malaise and slightly warmer weather are added to the mix, the potential for any positive results becomes remote."

But Beder also said that investor expectations for retailers have reached a low, giving the sector a chance to bounce back in December. The Standard & Poor's retail index is down about 20 percent since the end of October.

Among retailers, Wal-Mart's steady focus on offering low prices will keep it ahead of rivals, analysts said. The world's largest retailer had been aggressively promoting toys and food in the weeks leading up to Black Friday.

Rival Target Corp is expected to post a 9.1 percent decline. Target had forecast a decline of 6 percent to 9 percent, with half the decline due to the later Thanksgiving.

Overall, department stores like Kohl's and J.C. Penney are expected to post an overall 14.5 percent decline. Apparel retailers' same-store sales are expected to drop 11.6 percent and teen and children's apparel is forecast to fall 12.3 percent.

Analysts on average expect a 2.5 percent decline in November same-store sales, according to Thomson Reuters data. That would be the biggest drop since Thomson Reuters began collecting same-store sales data in 2000.That means investors should not only watch forecasts when retailers report November sales on Thursday, but also for comments on margins and earnings.


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Trader disclosure: On Dec. 3rd, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Macke Owns (MGM), (MSFT), (UUP), (WMT), (MCD); Adami Owns (AGU), (BTU), (C), (GS), (INTC), (MSFT), (NUE); Finerman's Firm Owns (PM), (MO), (IBB), (PPH), (CSCO), (MSFT); Finerman's Firm Is Short (IYR), (IJR), (MDY), (IWM), (SPY), (BBT), (COF), (USO); Finerman's Firm Owns (DNA) And (DNA) Calls; Najarian Owns (NUE); Najarian Owns (UYG) Calls; Najarian Owns (SNDK) Calls

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Stacey Gilbert is a strategist with Susquehanna; Susquehanna Capital Group Is A Market Maker In (ANF); Susquehanna Capital Group Is A Market Maker In (GPS); Susquehanna Capital Group Is A Market Maker In (ROST); Susquehanna Capital Group Is A Market Maker In (WMT); Susquehanna Capital Group Is A Market Maker In (TGT)

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