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 The coming weeks, as the fourth-quarter earnings season gets
underway, are among the more active periods of the year for
retailers to issue earnings preannouncements. The fourth quarter
includes the crucial holiday shopping season.
An industry conference, the ICR Xchange in Orlando, Florida, which
starts on Monday, is a particular area of focus.
Analysts expect companies presenting at the conference - which
include Lululemon Athletica <LULU.O>, Big Lots <BIG.N> and Guess
<GES.N> - to shine a light on holiday trends and discuss business
expectations for 2015, and in some cases update their outlooks.
The early indications have been supportive, with a number of
retailers reporting strong December sales this week. J.C. Penney Co
<JCP.N>, American Eagle Outfitters <AEO.N> and Aeropostale Inc
<ARO.N> all had strong results, though Macy's <M.N> disappointed.
The flood of market commentary from next week's conference will
likely provide more color on the sector’s prospects. Despite its
solid sales, J.C. Penney announced store closures, while struggling
apparel retailer Wet Seal Inc <WTSL.O> said this week that it laid
off 3,700 workers, so clearly there are divergences in the fortunes
of retailing companies.
"People are betting on volatility for sure. Money is moving in -
they’re betting on moves," said Dennis Dick, head of markets
structure at Bright Trading LLC in Las Vegas. "If you're chasing
these, there's going to be a lot more risk."
The 30-day at-the-money implied volatility for the SPDR S&P retail
exchange-traded fund <XRT.P>, a gauge of the risk of large moves in
the ETF, is at 19 percent, or higher than 90 percent of readings in
the last 52 weeks, according to data from options analytics firm
Trade Alert.
Despite the early upbeat results, investors are wondering if the
stocks have become overvalued.
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The sector "feels like it’s a bit stretched," said Chris Bouffard,
chief investment officer at the Mutual Fund Store in Kansas City,
Missouri. "I’m having a hard time assessing whether the mainstream
consumer really believes gas prices are going to be a sustained
savings for them."
The broader Consumer Discretionary Select SPDR fund <XLY.P> has seen
inflows of $278.87 million so far this year, according to data from
ETF.com, while the SPDR S&P Retail sector ETF <XRT.P>, which closed
at a record on Thursday, has seen outflows of $41.09 million.
With the retail ETF close to its all-time high of $97.15, some are
looking to the options market for protection against losses.
Over the last few days there has been increased buying of puts on
the XRT at the $95 strike expiring in January, and similar activity
was seen in puts on several retailers, J.J. Kinahan, chief market
strategist at retail brokerage TD Ameritrade Holding Corp, said.
"They don't necessarily want to get rid of the shares, as there is
optimism around earnings, but want to protect themselves," he said.
(Reporting by Saqib Iqbal Ahmed; Editing by Leslie Adler)
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