Retailers Rejoiced Over the Holidays, but There's Caution on Wall Street

Retailers saw sales rise to levels last seen in 2011, but strategists and others say investors need to hedge their bets. A 'new world order' is shaping the American retail landscape

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Yamil Berard
Jan 04, 2018
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U.S. retailers are basking in gains of end-of-year holiday sales. Some estimates put increases at more than 5% compared to the same period last year.

In fact, industry data shows it hasn't been this good since 2011. Of course, that was years before Amazon (

AMZN, Financial) and other online retail companies began grabbing a bigger piece of the retail pie.

The excitement now begs the question: How long will this last? And how can investors prepare for changes ahead?

The National Retail Federation, based in Washington D.C., is expected to release its annual forecast and predictions beginning on Feb. 7.

But a growing consensus is that this year’s holiday sales surge may be remembered as a mere blip on the screen. For the past year, traditional retailers have been hit with tumbling stock prices and declining revenue. Last year, more than 19 of these companies filed for bankruptcy protection and more are expected to do so in 2018.

The shift to e-commerce isn’t going to let up anytime soon, says Simeon Hyman, head of investment strategy for ProShares, a Maryland-based provider of exchange traded funds.

“We know we had a good holiday season,’’ Hyman tells GuruFocus. “Just in terms of what just happened, we had a relief rally for brick and mortar retailers.”

While industry data researcher Mastercard SpendingPulse estimated a 4.7% increase in retail, it also reported an 18% growth in online shopping over the holidays.

And, Hyman says, that’s what investors need to prepare for in 2018. He calls the shift to e-commerce "the new world order."

Market trends

Some big-name retailers are doing just fine. Costco Wholesale Corp. (

COST, Financial) and Dollar Tree (DLTR, Financial) stock is over $100 a share.

And it's unlikely that traditional retail will suddenly disappear anytime soon. Some say we are in the first innings of a "secular decline.”

In some cases, department stores, like Nordstrom (

JWN, Financial) and Macy’s (M, Financial), are fighting back. They are creating more personalized experiences for in-store shoppers. There’s also the development of showroom boutiques and integrated models that may help the industry survive.

Macy’s stock is selling for $24.34 per share. Its price-earnings (P/E) ratio is 10.79 and its price-book (P/B) ratio is 1.77. Its price-sales (P/S) ratio is 0.29, according to GuruFocus data.

Nordstrom has a P/E ratio of 16.82, a P/B ratio of 9.30 and a P/S ratio of 0.54. It stock sells for $47.81 per share, according to GuruFocus data.

Other traditional retailers are not faring as well.

JCPenney (

JCP, Financial), which announced last year closings of more than 140 stores, has a P/E ratio of 20.58 and a P/B ratio of 1. It has a P/S ratio of 0.08. Its stock is at $3.52 per share, GuruFocus data shows.

Sears (

SHLD, Financial) also announced dozens of store closings last year. It has seen its stock drop to $3.56 a share from $13.64 last April.

Meanwhile, some of the companies most affected by e-commerce have drawn some big-name investors. A handful of gurus have scooped up apparel industry stocks over the last six months.

Four gurus have bought stock in Express Inc. (

EXPR, Financial), which is selling for just over $9 a share. Gurus have bought up more than 726,000 shares of the stock.

Investment strategy

Some investors likely will want to invest on a bet that the internet will put brick-and-mortar retailers out of business. In November, ProShares launched a pair of exchange-traded funds that aim to help them do that.

One of the funds, known as ProShares Decline of the Retail Store ETF, is specifically designed to benefit from the decline of brick-and-mortar retailers.

The other fund, ProShares Long Online/Short Stores ETF, combines two specialized retail indexes into one. It is 100% long the ProShares Online Retail Index, which primarily tracks retailers that primarily sell online, and 50% short the Solactive ProShares Brick and Mortar Retail Store index.

Hyman has been asked if he opposes a strategy that encourages short sales.

“It’s really about portfolio context,’’ he says. "When stocks go down, this is a way to take advantage of that phenomenon.”

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