How Departmental Retailers Fared This Holiday Season

This holiday season Americans were in the mood to spend. Improved economic scenario with a low unemployment rate resulted in sturdiest holiday sales growth since the end of the Great Recession. Cash registers at stores jingled as much as online channels, letting the retailers rejoice. Per National Retail Federation, retail sales during the November/December period increased 5.5% to $691.9 billion. Moreover, online shopping sales this holiday season increased 14.7% to $108.2 billion, per Adobe Analytics.

Our today’s article revolves around three department store stocks — Kohl’s Corporation (NYSE:KSS) , J. C. Penney Company, Inc. (NYSE:JCP) and Macy’s, Inc.’s (NYSE:M) ,— as to how the holiday season has unfolded for them. Promising holiday sales numbers have not only helped the industry to rally 10.9% in a month but also outperformed the S&P 500’s growth of 3.2%. We noted that the industry occupies a space in the top 7% of the Zacks Classified industries (19 out of the 265). Further, the broader Retail And Wholesale sector of which they are part of, is also placed at top 13% of the Zacks Classified sectors (2 out of 16).

From the above mentioned scenario, it is quite evident that the near-term outlook for the industry is robust, and it is likely to continue the upward movement. Let’s take a closer look at department store stocks performance.

Kohl's Posts Solid Holiday Comps

Kohl's Corporation holiday sales numbers were most impressive among the departmental stores retailers. Both comps and total sales advanced 6.9% year over year, for the combined November and December period. Notably, this marks significant improvement from 2.1% and 2.7% drop in comps and total sales, respectively, witnessed in the 2016 holiday season. We believe that sustained focus on technology improvements and omni-channel expansion is likely to fuel growth at Kohl’s. In fact, this Zacks Rank #2 (Buy) company’s better-than-expected holiday performance and optimistic vision for January encouraged management to raise fiscal 2017 earnings outlook from $3.72-$3.92 per share to $4.10-$4.20.

Nonetheless, management stated that the updated guidance doesn’t include any impact from the latest tax reforms, which is likely to have a favorable impact on the company’s effective tax rate. Moreover, amendments in the federal tax legislation are expected to generate a non-cash tax benefit associated with 2017 deferred tax balances.

JC Penney Holiday Comps Rise

J. C. Penney Company reported positive comps this festive season, unlike the prior year. It delivered comps growth of 3.4% for the combined nine weeks period, ending on Dec 30, 2017. Robust comps performance was driven by solid sales at home, beauty and fine jewelry. It was also propelled by this Zacks Rank #3 (Hold) company’s sturdy e-commerce business that recorded double-digit sales increase year over year.

E-commerce growth was primarily driven by sought-after gifting categories like home decor, luggage, fine jewelry, toys, boots and athletic footwear. Apparel categories, mainly women’s and kids, continued positive momentum as well.

Macy’s Witness Modest Growth in Comps

Despite taking a slew of measures to improve performance Macy’s holiday sales numbers improved modestly. Comparable sales on an owned plus licensed basis increased 1.1% during November and December period combined, while on an owned basis, the same inched up 1%. Following the modest increase in holiday sales, the company narrowed sales guidance. The company now anticipates sales for fiscal 2017 on an owned basis to decline between 2.4% and 2.7%, compared with the prior guided range of decrease by 2.2-3.3%.

Macy’s informed that digital business remained robust and also witnessed improvement in sales trend at stores. Further, holiday sales displayed strength at Macy’s, Macy’s Backstage, Bloomingdale’s, Bloomingdale’s The Outlet and Bluemercury. Active apparel, shoes, dresses, coats, fine jewelry, men’s tailored clothing, children's and home categories also marked strong sales. Macy’s currently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

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