Best Buy Earnings Buoy Retail Stocks

Brittney Barrett  |

Retail led to broader market higher on Tuesday, beginning with the release of Best Buy’s (BBY) earnings, which despite weakness, exceeded both profit and sales expectations for Q2. On the whole, May retail sales beat estimates, imparting a new optimism among investors who had feared the worst for second quarter earnings. Best Buy’s profits are being interpreted as representative of the sort of things we can expect within the sector and for the market on the whole in the coming weeks. Best Buy has fallen by 16 percent this year as online retailer Amazon (AMZN) chips away at the electronic company’s core businesses.

Retail as a whole, not just Best Buy, has been under siege, especially as more Americans are forced to drain their paycheck at the gas pump instead of at the mall. The extent of the damage inflicted by sky-high energy costs though was lower than expected.  Reports released Tuesday indicated the impact was less than expected.  The Department of Commerce indicated retail sales falling 0.2 percent for the month of May or 0.3 percent excluding gasoline sales. Surveys indicate a 0.5- 0.7 percent decline has been expected. In spite of healthier consumer spending than forecast, the drop represents the first monthly slip in 11 consecutive months and a direct reversal of April’s rise of 0.3 percent.

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Since the news, shares of Best Buy and other retailers began to rally.  Among the companies making headlines today was J.C. Penny. Shares were up their biggest single-session percentage gain over a decade after it was announced that Apple Inc.’s retail-store chief, Ron Johnson has joined the company as C.E.O. This isn’t Johnson’s first retail gig either. Prior to his time at Apple (AAPL), he logged 15-years in the business at the nation’s number two chain, Target Corp (TGC). The hiring is especially well timed as competition from the like of Macy’s Inc. (M) and Kohl’s Corp. (KSS) becomes fiercer amid pressure to cut costs. Both Kohl’s and Macy’s also edged higher on the mornings’ retail optimism.

Other beneficiaries of the news included Nordstrom’s Corp. (JWN). In addition to being able to expect better earnings than forecast, the retailer has been garnering attention since it announced plans to expand their luxury department stores to Canada. Additionally, an analyst on Monday named Nordstrom among the shoe retailers that would continue to thrive during the economic pull back. With innovative offerings and of-the-moment styles, the selection at Nordstrom’s’ is expected to continue to draw buyers while other less creative or more consistent retailers could lose customers.

Other shoe companies that have entered the spotlight include Timberland, shares of which climbed considerably yesterday after VF Retailers announced they would purchase the company. Timberland shares ticked slightly lower after yesterday’s gains. Another shoe retailer Brown Shoe Company (BWS) was also trading on high volume today as its ex-dividend date approaches. As of tomorrow, owners of shares at market close today will be qualified for a dividend of 7 cents per share or 3.1 percent. Brown Shoe Company is down 32 percent for the year.



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