Retail Back in Investors’ Cross Hairs

A look at the stock market’s most important measure for retailer’ health has suggested everything is fine amongst those businesses that are peddling products directly to the consumer.

The $1.16 trillion retail index on the S&P 500 has moved up 13% during 2017 to reach a new high. That increase is close to double that of the entire S&P 500.

That positive performance had been for the most part delivered entirely by a segment of new retailers who now represent more than 50% of the value for the index including Amazon.com, Netflix and Priceline Group.

In addition, it hides the broad slump in stock for traditional retailers that have been hurt by the likes of Amazon and others.

When the largest three gainers on the retail index are taken out, the aggregate value of the group has gained only 1.3% in 2017 and is 8% shy of it high mark set two years ago.

With that thought in mind, next week will give a fresh look at how retail’s old guard is making it and whether a move toward the better in their poor share performance may be a possibility.

Earnings reports for the first quarter from Macy’s, Nordstrom, Kohl’s and JC Penney all expect to be quite sobering, but may shed light on big plans for turnarounds launched by a few of them, including layoffs in the thousands, have begun to bear fruit.

Overall, earnings for the 2017 first quarter have been quite strong, with 14.7% growth for the S&P 500 compared to the same time last year, which is the best in 6 years.

One analyst said it appears the consumer seem ok, as the consumer discretionary sector, which includes department stores, should show growth of 3.9% which is not big, but up from 1.4% one month ago.

However, sales are not expected to be strong for department stores. Analysts caution that the traditional retailers might no longer be the best measure for consumer health due to people having different ways to spend their money.

On Friday, the main measure by the government on consumer spending will be released and is expected to have overall sales for retail bouncing back during April following two consecutive declines.

Of the largest four names in retail mentioned previously to report this coming week, just Nordstrom is expected to post increases in per share earnings and by nothing more than 2.8%.

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