Retail Stocks Recover Amid Vaccine Optimism, Low Quarterly Bars

Companies in the consumer discretionary space — once the laggards of the 2020 economy — are showing fresh signs of life entering the critical holiday season.

Covergirl owner Coty Inc. touched itshighest level since April.Macy’s Inc. is holding steady despitereporting another sharp drop in same-store sales. AndL Brands Inc., the owner of Victoria’s Secret, emerged on Thursday as the biggest one-day gainer in the S&P 500, though that’s largely thanks to its soap-selling Bath & Body Works chain.

Some off-price retailers are even talking about reinstating dividends in 2021, includingKohl’s Corp. and TJX Cos., boosting investor confidence in those chains, said Poonam Goyal, an analyst at Bloomberg Intelligence.

“Nonessential retailers have shown tremendous improvement,” she said. “Lean inventory and cost management — that’s really been the key driver for them to weather the pandemic.”

The renewed optimism around retail comes as executives say they see promising signs on holiday traffic, especially as newly introduced options like curbside pick-up grow morepopular. Retail sales, which inOctober grew at the slowest pace in six months, appear to be picking up pace as the Christmas season hits full swing, with high-margin categories like home goods driving the gains.

Advances on the vaccine front are also bolstering Wall Street’s view of retailers, many of which are at risk of shutting down shops if future lockdowns are ordered. Deployment of a vaccine could bring crowds back to malls and shopping centers, giving companies and their investors some light at the end of the tunnel.

‘One-on-One Relationship’

Until then, retailers are controlling what they can: digital growth, plus an emphasis on one-on-one virtual relationships, says Macy’s Chief Executive Officer Jeff Gennette.

“We are really focused on the local customer around these big stores that have restricted traffic,” Gennette said in an interview. “That one-on-one relationship is more important than ever.”

Of course, some of the optimism after this week’s earnings is just the benefit of low expectations. Retail Metrics President Ken Perkins said 95% of companies had exceeded earnings expectations as of Nov. 18, well above the 20-year long-term average of 61% beating forecasts.

“We are seeing a majority of retailers so far beating on both and top and bottom lines, which really comes down to low-bar consensus estimates,” said Camilla Yanushevsky of CFRA Research. “As a whole consensus, estimates definitely underestimated the impact of government stimulus in the both 2Q and 3Q.”

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