Retail Sales Report is Good for Some, Bad for Others

By Jonathan Yates - August 22, 2012 | Tickers: AMZN, BBY, EBAY, JCP, SHLD | 0 Comments

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While there was something for every investor in the July retail sales report from the Department of Commerce, the big winners were Amazon (NASDAQ: AMZN) and Ebay (NASDAQ: EBAY).  The big losers were midlevel department stores such as Sears Holdings (NASDAQ: SHLD) and J.C. Penney (NYSE: JCP), and electronic retail chains such as Best Buy (NYSE: BBY) and Radio Shack.

Overall, retails sales rose by 0.8% in July.  Internet retailer sales rose by 1.5%, almost twice that amount.  By contrast, department stores sales were higher by only 0.06%, a full one-quarter below the total rise.  The increase for Internet retail sales was about twice that for those by department stores.  About this, "Consumers continue to be thrifty..." noted an article in The Wall Street Journal by Conor Dougherty and Shelly Banjo.

From that, the article furthered that, "Penny-pinching bodes well for dollar stores and discounters like Wal-Mart Store, Inc. and Target, often at the expense of midtier department stores and consumer electronic retailers."  With gasoline rising to close to $4 a gallon, the cost-minded consumer will be even more inclined to shop online from Amazon or Ebay, or take their business to Target, Wal-Mart of a discount variety store like Dollar General.

That has certainly been reflected in the share prices and financial performances of these companies.  Over the last year, Best Buy,  Sears Holding and J.C. Penney are all off by about one-tenth or more.   By contrast, in the Internet retail sector, Amazon is up more than one-fifth for the last year with Ebay rising almost one-half.

As with anything in life, the numbers tell the story.

Ebay is very profitable with earnings-per-share growth this year almost doubling.   The profit margin for Amazon is low due to heavy expenses in developing a national network to allow for same day deliveries.  As a result, earnings-per-share growth for Amazon for the next year is projected to more than double.

Sears Holding has a negative profit margin with earnings-per-share growth down this year plunging.  Next year, earnings-per-share growth is expected to fall even more for Sears.  JC Penney is losing money, too, with earnings-per-share growth declining this year in the triple digits.  Best Buy is barely making money with the earnings-per-share growth being negative well into the triple digits, too.

The future is even bleaker for the brick-and-mortar group and even brighter for the Internet crowd.  Amazon took a hit to earnings this year in order to develop a nation-wide infrastructure that will allow for same-day delivery.  Ebay, too, will be offering this service.  Not only will shopping from home over the Internet be greatly facilitated, it will save more money due to the rising price of gas.

Internet sales was the best performing group in the retail report from the Department of Commerce: expect that to continue.  Department stores were almost the worst, losing out to gasoline sales by just 0.1%.  It is possible that greater Internet shopping not only reduced sales at department stores, but also at gas stations too as fewer were driving to the mall.

In addition to the share price increases and decreases with the associated financials, the short floats still help to tell the story, too.  A short float of 5% is considered to be troubling for a company.   Even with a significant fall in the share price for 2012, there is still a short float of 15.05% betting that Best Buy will decline even more.  A short float of 11.77% expects the same for Sears Holding.  The short float of 30.68% for JC Penney makes a very persausive point that many more expect lower price levels to be ahead. By contrast, Ebay and Amazon, despite each rising substantially for 2012, both have small short floats.

Go long the Internet, and go short the mall. This is the best way to shop for profits in the retail sector.

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