Please ensure Javascript is enabled for purposes of website accessibility

Macy's and Kohl's Could Report Stellar Holiday Sales This Week

By Adam Levine-Weinberg – Updated Apr 14, 2019 at 9:48PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Strong retail sales trends during the holiday season could bode well for the top two U.S. department store chains.

The 2017 holiday season was a turning point for many U.S. retailers: particularly department stores. Macy's (M 0.04%), Kohl's (KSS -0.99%), and even J.C. Penney (JCPN.Q) broke out of long-running sales slumps, posting solid comparable-store sales growth for the November-December holiday period and the fourth quarter as a whole.

For Macy's and Kohl's, that momentum continued into 2018. Meanwhile, J.C. Penney's results quickly turned south again. Despite the divergence in their results, all three stocks have tumbled in the past two months, due to investors' concerns about their cautious holiday quarter forecasts.

M Chart

Macy's, Kohl's, and J.C. Penney stock performance. Data by YCharts.

However, retail sales appear to have been phenomenally strong during the holiday season. This bodes well for Macy's and Kohl's -- and possibly even J.C. Penney -- all three of which are likely to report their November-December sales results later this week.

Why investors have been worried

Through the first three quarters of fiscal 2018, Kohl's and Macy's have both posted solid comp sales gains of 2.1% and 2.7%, respectively. Those figures compare favorably to J.C. Penney's 1.7% comp sales decline during the same period, which was driven by a dreadful performance in the third quarter.

Yet investors have found plenty of reasons to fault Macy's and Kohl's, despite their solid sales growth. For one thing, Kohl's hasn't been able to sustain the level of growth it achieved in the holiday quarter a year ago, when comp sales rose 6.3%. Additionally, discounters like Target and many off-price chains have been posting even faster growth, thanks to the strong consumer spending environment.

Compounding these worries, Macy's and Kohl's both projected in November that sales growth would slow somewhat this quarter, compared to the first three quarters of fiscal 2018. And J.C. Penney's new CEO indicated that a quick turnaround wasn't likely.

A superb holiday season for retailers

Investors have been so concerned about these fourth-quarter forecasts that they seem to have ignored some of the retail sales data that has come out recently.

The exterior of a Kohl's store

Investors may be misjudging how department stores fared last quarter. Image source: Kohl's.

Most notably, the weekly Redbook Index of U.S. retail sales was consistently strong throughout the holiday season. For each of the eight weeks between Nov. 5 and Dec. 30 -- a period that roughly corresponds to the holiday shopping season -- the Redbook index showed a year-over-year gain of at least 6.1%. The highlights included a 7.9% jump the week of Black Friday, a 7.8% increase the week before Christmas, and a 9.3% surge in the last week of December.

For comparison, the Redbook Index showed a 5.7% increase in the best week of the 2017 holiday season, and the average gain was just over 4% for those eight weeks as a whole. Additionally, year-over-year gains averaged less than 4% in the first half of 2018. Macy's and Kohl's still managed to post solid sales growth and superb earnings growth during those periods. Even J.C. Penney cashed in during the fourth quarter of fiscal 2017.

Bears might point to the U.S. Census Bureau's November retail sales report as a counterexample. This report showed that sales at department stores declined 0.2% year over year in November 2018.

However, that still represented a notable improvement compared to the previous several months. Moreover, regional department store operator Bon-Ton Stores went bankrupt and closed all of its stores in 2018, while Sears Holdings has closed about a third of its stores over the past year. Several other department stores have closed a few stores here and there. As a result, if total sales at department stores are down just slightly on a year-over-year basis nationally, comparable-store sales at the remaining department stores must be rising quite a bit.

The guidance may have been conservative

Macy's, Kohl's, and J.C. Penney all posted stronger-than-expected sales during the 2017 holiday season. As a result, they are facing relatively tough year-over-year comparisons this quarter, which may have led their management teams to stay conservative with their forecasts.

Fortunately, consumers appear to have opened up their wallets in a big way during the recent holiday shopping season. The Redbook data suggests that retail spending trends improved dramatically starting in November. Given their solid momentum entering the holiday season, it seems likely that Macy's and Kohl's joined in the fun. (Whether J.C. Penney also posted an increase in sales is less certain.)

If Macy's and Kohl's did blow past their sales expectations for the holiday season, there's a good chance they will raise their Q4 earnings forecasts this week -- just as they did at this time a year ago. Considering that Kohl's stock trades for less than 12 times forward earnings and Macy's is even cheaper at eight times forward earnings, news like that could unleash huge rallies for both department store stocks.

Check out the latest Macy's and Kohl's earnings call transcripts.

Adam Levine-Weinberg owns shares of J.C. Penney, Kohl's, and Macy's. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Nearly 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Kohl's Stock Quote
$32.08 (-0.99%) $0.32
Macy's Stock Quote
$23.50 (0.04%) $0.01
J.C. Penney Stock Quote
J.C. Penney

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/01/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.