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Chart of the Day / It’s Best not to Bet on the ‘Death of Retail’

It’s Best not to Bet on the ‘Death of Retail’

August 20, 2018

The term ‘retail apocalypse’ has become quite popular over the past couple of years.

Many investors threw in the towel, figuring that all retail would be overtaken by online sales.

But that’s not the case.

Nowadays, some your best opportunities are in retail. Thanks to rising wages, tax cuts, and higher employment, Americans are spending more than ever. We can clearly see that with Walmart (WMT), Nordstrom (JWN) and Home Depot (HD) quarterly results.

Walmart said its quarterly sales rose at the fastest rate in over a decade thanks to grocery and apparel.  Adjusted EPS was $1.29, as compared to $1.22 expectations.  Revenue of $128.03 billion was better than the $125.97 billion forecast.

While it faces heavy competition from, Walmart’s online sales were up 40% for the quarter. Better yet, Walmart anticipates a 40% increase for the full-year. That’s great news for the stock.  Since July 2018, WMT soared from $82.50 to $100.

Home Depot is quickly recovering, too.

In fact, after a brief dip to $191, the stock is back to $197 and rising.  In its most recent quarter, HD crushed expectations with EPS of $3.05, beating expectations for $2.84 billion.  Revenue of $30.46 billion was better than forecasts for $30.03 billion.

Same store sales were up 8% globally.  Analysts had only forecast 6.6% growth.

Even Nordstrom had a great quarter.

The Company said its performance was one of its best. All thanks to a lower effective tax rate and the impact of “a new revenue recognition standard,” says the company.

Net income for the quarter was $162 million, or 95 cents a share, up from $110 million, or 65 cents a share last year.  That was also above expectations for 84 cents.  Revenue was up 7.1% to $4.07 billion, which was ahead of $3.96 billion expectations.

We can clearly see a boom taking shape in ETFs, too.

The SPDR S&P Retail ETF (XRT) has jumped from $43 to $51. The Van Eck Vectors Retail ETF (RTH) ran from $90 to $108.  Even the Invesco Dynamic Retail ETF (PMR) has run from a low of $35 to $42 in recent weeks.

All on the heels of consumer spending.

We don’t believe any of this is a temporary blip. Instead, we expect to see even better retail sales moving into the holiday season. Even the national Retail Federation (NRF) seems to agree.  They just raised their 2018 sales forecast to 4.5% growth compared with last year.

That’s up from an initial range of 3.8% to 4.4%.

These numbers prove that retail isn’t dead yet.  In fact, it appears quite healthy, which sets up some incredible opportunities moving forward.