What Best Buy's and Kohl's Good Numbers Tell Us About Retail

In this segment of the Motley Fool Money podcast, host Chris Hill, Million Dollar Portfolio's Jason Moser and Matt Argersinger, and Total Income's Ron Gross talk about the last quarter in retail. You have solid results from Best Buy (BBY 1.09%), Kohl's (KSS -2.45%), and Macy's (M -2.03%). But Foot Locker (FL -4.11%), J.C. Penney (JCPN.Q) and Lowe's (LOW -0.14%) didn't do so well, and Nordstrom (JWN -1.35%) is giving arguments to both bulls and bears. So what does it all mean and what does it say about the retail sector and the economy more broadly?

A full transcript follows the video.

This video was recorded on March 2, 2017.

Chris Hill: We're going to start with the good news. Best Buy and Kohl's both putting up strong fourth quarter results. Best Buy's stock popping. Kohl's down a little bit, although over the past 12 months, I don't think Kohl's shareholders have anything to complain about, because that stock has had a great year.

Ron Gross: Up 55%, I want to say, over the last year. Not too shabby. Eight or so retailers reported over the last couple of days, and I'm trying to make sense to see if I can see a theme. I saw, Macy's CEO came out and said, all boats are rising and everybody in retail right now is benefiting from strong consumer confidence. But you know what? Not so much. As you said, Best Buy and Kohl's had a nice quarter. Nordstrom's, I think, actually, had a nice quarter as well. The sentiment kind of changed on that one from one minute to the next from investors. Macy's had a good quarter. Foot Locker did not. J.C. Penney did not. Lowe's did not. I can't grab a theme here, to say why some had strength and some did not.

Matt Argersinger: I think when everything retail was suffering last year, and we lumped everything together -- I think this is how things are supposed to shake out. Essentially what you have now is, the strong operators are doing better, and the poor operators, the ones who are losing customer traffic, are not running the business as well, and they're still losing. I think that's a natural evolution of any market.

Hill: I don't know why the Macy's CEO would say something like that. You mentioned Foot Locker, that's down big on Friday. JCPenney, if that stock drops any further, Jason, that's going to drop out of the billion-dollar market cap status. To Matty's point, we are starting to see some separation in the traditional bricks-and-mortar retailers.

Jason Moser: Yeah. And, I think with JCPenney as an example, we've seen them try virtually everything to this point, from selling appliances to now developing exclusive lines of clothing for children. I understand what they're trying to do. But, again, you have to go back to that old question that Ron has been asking for many years: does the world really need it? And I think, at this point, the answer is clearly no.

Gross: I think there's some companies that have been punished maybe unfairly. I think Lowe's is a very well-run company. Unfortunately, it always gets compared to its bigger brother, Home Depot, which is better-run. But if you continue to see weakness in a company like Lowe's, you can probably take advantage of that weakness and become a shareholder.

Hill: Is the fact that some of these retailers are more heavily tied to malls? Is that one theme here? Because when I think about Foot Locker, when I think about L Brands, parent company to Victoria's Secret, Bath & Body Works -- that also came out this week, bad results there -- it does seem like, the more heavily tied you are to traditional malls, the higher the bar is for you operationally.

Gross: That's fair. I'm trying to think of a company like Gap, which, you'll often see a company like Gap itself in a mall, but Old Navy is often stand-alone. And Old Navy has actually been the strength for a long time with that company. Actually, this quarter, nice to see Gap itself, the brand, coming on a little bit stronger than normal. But, your point about malls is well-taken.