Struggles seem to be over for department stores (at least for some time) given Kohl’s (KSS - Free Report) and J.C. Penney (JCP - Free Report) ’s better-than-expected same-store sales performances. Consumers’ tendency to shift to online shopping or ‘Amazonization’ has long been a cause for concern for brick-and-mortar retailing. But efficient cost and inventory management brought this overlooked space into the limelight lately.
investors should note that J.C. Penney Co. came up with its third-quarter fiscal 2017 results on Nov 10. Its adjusted loss per share of 33 cents was narrower than the Zacks Consensus Estimate of loss of 43 cents. Revenues of $2.81 billion also came ahead of the estimate of $2.76 billion. Comparable sales rose 1.7% in the quarter, compared with a decline of 0.8% recorded in the prior-year quarter.
Management noted that during the third quarter, steadfast actions were taken to “clear slow-moving inventory, primarily allowing for an improved apparel assortment heading into the holiday season.” Management believes these measures will better position the company in the all-important holiday season.
Such optimistic comments led shares of J.C. Penney to add more than 15% on Nov 10, which in turn acted as a cornerstone for the whole space. Macy's Inc. (M - Free Report) added 2.5% and Kohl's gained about 4.5% on Nov 10.
How About Online Retailing?
On the other hand, Amazon.com Inc. (AMZN - Free Report) lost about 0.3% on that day. Clear indications of a turnaround in department stores may mar the lure of online retailing in the near term. This is especially true given that online retail stocks have attained several heights in the recent past, calling for certain overvaluation and making this a too-late-to-enter space.
As per Moody’s, Amazon.com Inc. is doing great in terms of sales growth but not profitability. Amazon's Prime Membership is apparently exaggerated by some analysts (read: 6 Reasons to Dump Amazon & Related ETF Strategies).
If we look beyond J.C. Penney, Wal-Mart (WMT - Free Report) is also proving its mettle. According to Jim Cramer, Wal-Mart has proved the "theoretically impossible" point with a host of growth initiatives and posed itself as one of the close competitors of Amazon (read: E-Commerce Face-Off: Wal-Mart Vs. Amazon ETFs).
Investors should note that traditional retailers are capitalizing on Amazon’s popularity lately. For example, Kohl’s has formed a partnership with Amazon under which the former will start selling Amazon devices, like Echo and Fire tablets, at 10 stores in Los Angeles and Chicago from October. Prior to this, in July, Sears entered into a deal to sell its Kenmore home appliances on Amazon.
Moreover, Amazon belongs to a Zacks Industry Rank is in the bottom 32%, at the time of writing while JCP is in the top 45%.
Thanks probably to the above reasons, Amplify Online Retail ETF (IBUY - Free Report) lost about 1.2% in the last 10 days (as of Nov 10, 2017) while VanEck Vectors Retail ETF (RTH - Free Report) and SPDR S&P Retail ETF (XRT - Free Report) added about 2.1% and 0.1%, respectively. If no severe downfall in the department stores data and outlook hits the market, we expect the recent winning trend of department stores to continue.
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