With the countdown to the holidays soon to begin in earnest, the mood on Wall St. couldn’t be less holly or jolly. After finishing at 1,499.21 on Wednesday — its lowest close since May 21, 2003 — the NASDAQ rallied strongly the following day before fizzling like the Spice Girls’ comeback and dropping to 1,516.85 on Friday, a decline of 7.9 percent for the week. The Dow didn’t exactly usher in any holiday cheer either, falling 5.0 percent from Nov. 7-14.
Among the worst performers were retail stocks, as Nordstrom (NYSE: JWN) lost 24.3 percent from weekend to weekend, J.C. Penney (NYSE: JCP) plunged 22.9 percent and Macy’s (NYSE: M) plummeted 31.4 percent. Still, something tells me that now is the time to invest in Santa’s southern suppliers. After all, weren’t financial conditions just as bleak last year? (Well, OK, maybe not as bleak — but pretty darn close).
From Sept. 20, 2007, when Rosalind Wells, chief economist of the National Retail Federation (NRF), first warned of a “somewhat challenging holiday season” until the day before Thanksgiving, retail issues sank faster than the New York Mets’ playoff hopes that year. In fact, both Nordstrom and J.C. Penney endured equity losses in excess of 31 percent during the period. Yet both rallied impressively in the days that followed, leading me to believe that a similar scenario might present itself this year.
The fact is, most retailers have already been penalized for what figures to be a dismal holiday sales season this year, so, like rubber balls (how’s that for a clever analogy), a bounce seems imminent, especially if there is any good news to report in the coming days and weeks. Evidence of this occurred on Wednesday when Macy’s announced a third-quarter loss of $44 million, yet saw its stock briefly rise in morning trading.
History also supports the notion of lowered expectations leading to higher stock prices. In 2001, despite a holiday sales increase of just 3.4 percent — well below the historical norm — retail issues boomed, with shares of Kohl’s (NYSE: KSS), J.C. Penney, Target (NYSE: T) and Macy’s all gaining in excess of 23 percent. (Interestingly, 2001 was also one of the few years that the NRF revised its initial sales forecast, lowering expectations.)
And how about this for irony: in 1999, when holiday retail sales grew by a whopping 8.1 percent — more than double the estimate for 2007 and the highest rate increase since the NRF began tracking such statistics in 1992 — major retailers like Target, Macy’s, Kohl’s, J.C. Penney, Costco (NASDAQ: COST) and Wal-Mart (NYSE: WMT) followed suit, shooting up an identical 8.1 percent in average price. The next year, however, when holiday sales growth shrank to 2.3 percent, about the rate that is projected for this year, those same six companies averaged a robust 9.9 percent in stock price appreciation. In other words, decreased sales had no effect on equity value.
If I were to fathom a guess, which I will, I’d say that Dec. 1 is the key date to watch this year. To begin with, it is Cyber Monday, one of the biggest online shopping days on the retail sales calendar and, secondly, there is evidence to suggest that e-commerce will go a long way toward determining whether there will be cheers or tears in Whoville this holiday season. According to comScore Inc. (NASDAQ: SCOR), online spending from Nov. 1 to Dec. 31, 2007, totaled a record $29.2 billion — up 19 percent over the same period in 2006. When one considers that overall holiday spending was up just 2.4 percent last year, it is easy to understand why the Internet component is so important.
Retail stocks to keep an eye on during this season of joy and goodwill include J.C. Penney, a traditional holiday winner, as well as discount stores Wal-Mart and Costco.
Recession Hits Japan
It’s official.
Japan, boasting of the world's second-largest economy, has been invaded by a foe more formidable than Godzilla, Mothra or Michael Jackson — recession. The Washington Post reported that, according to Japanese government officials, Japan’s gross domestic product (GDP) “contracted at an annual rate of 0.4 percent from July to September, marking the second consecutive quarter of negative growth — the technical definition of a recession.”
An Apple a Day…
On “Taking Stock with Derek Simon” this week, I had a great chat with Turley Muller about the future prospects of Apple (NASDAQ: AAPL), a company that has seen its stock price take a nosedive in recent months. Visit http://www.istockanalyst.com/radio/podcast111708.html to listen to the show.
