What the Holiday Sales Numbers Tell Us About U.S. Retail

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The reports on shopping season from the nation's big retail chains are coming in, and they are, unsurprisingly, a mixed bag. Target (TGT -0.54%), Costco (COST -0.12%) and (here's a surprise) Bed Bath & Beyond (BBBY) looked good. But Macy's (M -2.03%) was mushy in December, which is likely to spread trouble elsewhere as it discounts to get back on track.

In this segment of the Motley Fool Money podcast, host Chris Hill and senior analysts Andy Cross, Aaron Bush, and Ron Gross offer their views on individual retailers, the investment thesis in brick-and-mortar chains, which segments show promise, and more.

A full transcript follows the video.

This video was recorded on Jan. 11, 2019.

Chris Hill: Let's move on to retail. December numbers starting to be announced by a slew of major retailers. Target. Costco. Bed Bath & Beyond out with some very encouraging holiday sales figures. Ron, not so much with Macy's.

Ron Gross: Macy's was tough. Everyone was hoping for a real strong holiday season, I think pretty much across the board. That was signaled by a number of retailers, from the big box to the department stores to the specialty retailers. And Macy's, for whatever reason, had a bit of a stumble in the middle of December. Beginning was OK and Christmas seemed to be OK. Somewhere in the middle, things took a turn for the worse. It's caused them to have to lower guidance both on the top line and the bottom line. Of course, that has reverberations throughout all of retail, and Macy's stock in particular gets completely smacked.

I think there is worry that some comments coming out of Macy's about them needing to clean house in terms of inventory will cause them to have to be promotional, which, again, will have implications for other retailers, which in turn will have to become promotional, as well. Lower prices, lower margins, and therefore lower earnings.

Andy Cross: Overall, the Mastercard SpendingPulse for November and through Christmas, retail sales were up 5.1% to $850 billion. Very good, very strong on home improvement, which was up 9% over the year. On the other hand, department store sales were down 1.3%. You're seeing pockets of growth here, but companies like Macy's, which started off strong but then fizzled near the end of the year into the Christmas period.

Hill: Bed Bath & Beyond, shares up 30% this week. Should we start to be curious about this? Or does that seem like a dead cat bounce?

Gross: I'd be careful rather than curious here. It's the whole expectations vs. results game that we talk about often. Things were really, really bad, and the report was a little bit better than expected, so the stock really popped. My guess is that this is a trade for most folks. I don't think people are looking to Bed Bath & Beyond as a long-term great company to hold like we look for here at The Fool. It's more of a trade for some people, as you said, a dead cat bounce. The stock's only 7X earnings, so theoretically, it's a value investment, but I think of it more as a value trap.

Aaron Bush: I think that pretty much any news around these big box stores is just noise. They're all fading in relevance.

Hill: Really?!

Bush: Oh, yeah, totally. If you look at Bed Bath & Beyond as an example, but also these other companies, their traffic growth is falling. A lot of the growth that they actually are showing in sales is from digital. It's pretty easy, if you have a budget, to get customers. But if you think about how this plays out over time, someone like Bed Bath & Beyond cannot compete online with the Wayfairs and Amazons of the world. There's just no way. And over time, you'll see the same thing with Macy's. Target seems to be stabilizing somewhat, but at the end of the day, they won't be able to compete the same way, too. Over the past five years, even with Target, maybe that's the best example, their stock has been more or less flat. I don't expect, when looking at any of these stocks, there to be anything better than flat five years from now.

Cross: There are those players, though, Ulta, Home Depot. If you call those big box retailers, buying habits from consumers -- granted, their online business, they've had very smart digital strategies, but those companies have been able to buck the trend when it comes to retail.

Bush: I agree, there are some exceptions. But I even think that a lot of the exceptions that a lot of even Fools think of as doing OK, if we look over the next five to 10 years, I don't think it's going to play out as well as we think.