Retails stocks going uptrend during holidays?
Investors have recently expressed concern about the status of the US economy, with a special focus on suffering consumers. With strong inflation eroding the purchasing power of their salaries, consumers have been forced to make some difficult financial decisions, weighing on investor sentiment about the prospects of the companies that serve those consumers.
However, stock markets rose somewhat on Tuesday morning, with the retail sector playing a significant role in the improved mood on Wall Street. Abercrombie & Fitch (NYSE: ANF) and Best Buy (NYSE: BBY) reported strong quarterly financial results that not only sent their respective shares soaring but also set a more upbeat tone for the critical holiday shopping season. The specifics are provided below.
A&F receives an A
Abercrombie & Fitch’s stock rose 19% early Tuesday as investors reviewed the teen and young-adult clothing retailer’s third-quarter financial results for the period ending Oct. 29. The figures demonstrated A&F’s sustained recovery from the pandemic shutdowns and sparked some confidence for the future months.
The results of key business KPIs were varied. Revenue of $880 million was down 3% year on year, with the strong US currency being mostly responsible. Higher freight and materials costs were major contributors to a 4.5 percentage point decline in gross margin to 59.2%, and adjusted earnings fell to $0.01 per share, down from $0.86 in the prior year. However, investors were startled to see any return at all, having expected losses even when adjusted.
The firm witnessed vastly different outcomes from its two primary shop names. Hollister saw a 12% dip in sales, while the Abercrombie & Fitch shop chain saw a 10% increase in revenue. Geographically, sales in the United States increased by 3%, while revenue in the Greater European and Asia-Pacific areas decreased by 22% and 26%, respectively.
Despite the increased inventory, A&F remained cautiously hopeful about the holiday season. It estimates fiscal fourth-quarter sales to be down 2% to 4%, owing primarily to foreign currency difficulties, but investors are relieved to see the company has enough new styles to match shopper demand over the next several weeks.
Best Buy raises its prices.
In other news, Best Buy’s stock rose 10%. The electronics retailer’s fiscal third-quarter financial report for the period ending Oct. 29 reaffirmed the consumer downturn but included figures that were better than many expected.
The third-quarter results were not encouraging. Total revenue fell 11% to $10.59 billion, while comparable-store sales (comps) declined 10.4%. Physical store locations and Best Buy’s e-commerce channels also experienced double-digit percentage reductions year over year. Furthermore, higher costs weighed on operating margins, resulting in adjusted earnings of $1.38 per share, a drop of roughly one-third from the previous year.
Nonetheless, Best Buy CEO Corie Barry was happy with the company’s performance. Best Buy is now focusing on the holiday shopping season, and Barry believes that the electronics retailer has managed inventory and planned promotions that will result in greater success in the six weeks ahead.
Best Buy investors can still expect a 10% loss in comps for the entire fiscal year. However, if Best Buy can return to a more normal holiday experience even with consumers under financial stress, it could be a long-term win for the company and its shareholders for years to come.
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