(Repeats Jan. 5 story for wider distribution)
By Nandita Bose
CHICAGO Jan 5 Weak holiday sales by some U.S.
department stores have reignited fears that the sector may never
recover its growth levels of the past, but some investors are
holding out hope for a longer-term recovery.
Disappointing sales at Macy's Inc and Kohl's Corp
, coupled with store closures and layoffs, triggered a
selloff in retail stocks this week.
Despite the share massacre that prompted a series of price
target cuts and stock downgrades, most analysts stayed away from
an outright "sell" rating on department store stocks.
Portfolio investors and credit analysts focused on retail
are willing to give Macy's, Kohl's and some other chains more
time to turn around, citing positive strategic changes in the
face of a seismic shift in the sector. Department stores have
suffered due to the rise of e-commerce and fierce competition
from off-price chains including TJX Cos and fast-fashion
retailers such as Inditex's Zara.
"There is optimism that someone will shrink the business
enough to hit that magic number and turn it around," said Ken
Murphy, senior vice-president and portfolio manager at Standard
Murphy and other investors said strategic changes being
executed by department store operators carried promise. This
includes investing heavily in boosting online sales, shrinking
the number of stores and aggressively cutting expenses.
For example, Macy's said on Wednesday it will shut 68 stores
this year, part of a plan announced in August to shutter 100
stores. The retailer said it will invest in
increasing its digital business, focus on the off-price retail
channel with its "Backstage" branded stores, restructure
management and reduce costs.
Macy's shares fell as much as 14.8 percent on Thursday,
their biggest percentage drop in seven months, while Kohl's fell
as much as 20.5 percent, its biggest decline in more than 14
The dismal showing hurt others like JC Penney Co Inc
, which fell 7.2 percent to $7.86, and Nordstrom Inc
, which ended down 6.9 percent at $45.56. Other retailers
including Sears Holdings Corp, Victoria's Secret owner
L Brands Inc and American Eagle Outfitters Inc
also reported weak sales.
SHIFTING YARDSTICKS OF SUCCESS
Jack Ablin, chief investment officer at BMO Private Bank in
Chicago, said he was optimistic about a long-term recovery, even
though the difficult operating conditions are unlikely to
"I don't see how the environment gets much better for these
retailers," Ablin said. "But they still have room to execute
changes and it will be interesting to see how that helps them."
Other investors pointed to the shifting expectations for
what could constitute a retail recovery.
"I don't think these retailers will come back to where they
were before or completely turn around their operations, but I do
expect them to stabilize the business over time," said Charles
Sizemore, founder of Sizemore Capital Management LLC, which owns
shares of Wal-Mart Stores Inc and Amazon.com Inc
Christina Boni, vice president and senior credit analyst at
ratings firm Moody's, shared the optimism: "2017 will be another
year in that journey of finding that right balance for these
"There will be a time when this shift from store to online
will start to equalize and these businesses will find an
equilibrium," she said.
Off the 22 analysts covering Macy's, 18 have a "hold"
rating, one has a "buy" rating and three have a "strong buy" on
the stock. Of the 23 analysts covering Kohl's, 13 have a "hold"
rating, five have a "strong buy," one has a "buy" and four rate
it a "sell," according to Thomson Reuters Eikon.
"Going forward, we do not anticipate a change in the weak
traffic levels witnessed across the retail industry," Telsey
Advisory Group said in a note to clients on Thursday. The
company cut the rating on Kohl's from "outperform" to "market
Despite these weak performances, analysts expect the
recently concluded holiday shopping season to be a strong one
for U.S. retailers, helped by higher wages, low unemployment and
falling gasoline prices.
The National Retail Federation has forecast that 2016 holiday
period sales will rise 3.6 percent to $656 billion. The final
figures are expected later this month.
(Additional reporting by Noel Randewich in San Francisco;
Editing by Matthew Lewis)