Trader Talk

Why Greece Matters to US Retailers

This is is the probably the toughest week of the year for active traders. Why? We've seen a huge increase in volatility and volume but it’s been around events so big (Greece, Spain, future of the euro) that traders have no idea — or strong opinion — on how it will play out.

Volatility and Greece: why it matters for retailers, who report April retail sales tomorrow. If someone asks, what do JC Penney sales in the U.S. have to do with Greece? The answer is, on a fundamental basis, nothing.

But headline risks overseas are very real risks to high beta stocks. Traders de-risk. They take exposure down. To everything, but particularly to the most actively traded, highest beta names, including retailers. That's what's been happening.

Think about it: it's not like guessing how much retail sales will be up, or how good the comp store sales number for Target will be. Traders have no clue how Europe or Greece is going to pan out.

Remember also that many retailers have significant international exposure; this not only means potentially lower sales if Europe is weaker, it means currency exposure will hurt them if the dollar appreciates.

Big U.S. retailers with international exposure include Tiffany , Guess , Abercrombie , Fossil .

Another headwind for retailers going forward: talk of apparel cost inflation in China.

What will retailers say tomorrow? Good start to April, slower in the second half of the month. Sales will be decent not great, up about 2 percent. It is unlikely we will get significant downward revisions to first quarter earnings, since February and March were strong, but we may get a couple outliers that will surprise on the downside.

But expect the slightly ebullient tone we have heard from retailers to be toned down. Why raise expectations right now?

Bookmark CNBC Data Pages:



Questions?  Comments?