What Retail Bloodbath?

December 1, 2017
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Oppenheimer put out a note yesterday called "Retail Bloodbath Continues," which focused on the extreme drops in Abercrombie & Fitch (ANF) and Chico’s FAS (CHS) yesterday. Today, all that seems forgotten, as companies that sell and make retail products like Big Lots (BIG), Ulta Salon, Cosmetics & Fragrance (ULTA) and Deckers Outdoor (DECK) have surged today following earnings releases. Are there any conclusions that can be drawn from their outperformance?

What Retail Bloodbath?-1



Bennett Raglin/Associated Press

Lesson #1: Buy Beauty. That’s the takeaway from Cowen’s Oliver Chen and team after seeing Ulta’s earnings beat. And for Ulta, they see growth in beauty continuing. "ULTA owns a small amount of the overall beauty market in the US (~3%), which is a testament to the long pipeline for growth," they write. "Ulta’s very compelling proposition of modern marketing, brand partnerships, and service offerings also strongly appeals to millennials." Ulta’s shares have climbed 8.4% to $231.56 at 1:27 p.m. today.

Lesson #2: Off price is where it’s at. Coming on the heels of surprisingly good earnings from Dollar General (DG) and Dollar Tree (DLTR), Big Lots’ big beat just confirms that discount ugg australia outlet stores and off price retailers are not being impact in the same way by the forces roiling the retail sector. Shares of Big Lots have jumped 12% to $50.21 in afternoon trading.

Lesson #3: Hope Springs Eternal. Shares of Deckers Outdoor, the maker of ugg australia boots, have soared today despite disappointing guidance. But a new CEO is taking the reins, and that appears to be good enough for investors, who have pushed shares up 7.6% to $53.00 in afternoon trading. Consider this from Guggenheim’s Howard Tubin and Paola Duguet, who rate Deckers a Neutral:

Over the last several years, DECK has invested in infrastructure, brought on new talent, grew its direct-to-consumer business, and expanded its merchandise assortment and brand portfolio. We believe the sum total of these efforts has positioned the company for the next stage of its lifecycle, Deckers 2.0. Leading the team in stage 2.0 will be Dave Powers, who will take over the CEO role officially on June 1. Mr. Powers has been with DECK for four years and is currently president of the company. Long-time CEO, Angel Martinez, who has presided over a period of significant growth at DECK, will continue as Chairman of the Board, but is retiring from his role as CEO. Looking forward, we believe the team at DECK has set the stage to expand the reach of its brands, namely UGG, to new customers while maintaining its integrity in terms of both distribution and pricing.

Just maybe not for Abercrombie & Fitch, which has followed up its 16% plunged yesterday with a 4.1% drop to $20.29 today.

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