The holiday shopping season is a time of year when consumer discretionary retailers can profit. Although some retailers like it relative humidity New York Stock Exchange: RH And Williams-Sonoma Inc. New York Stock Exchange: WSM are the “haves” and are expected to have a strong holiday season, many retailers are the “have nots” and are already expected to have weak results. This has already led to investors dumping shares for tax purposes, but the bar may have been set too low. Here are three stocks that are expected to have weak holiday sales but could surprise with gains.
Kohl’s: Heading into the holidays with low expectations as new CEO starts in 2025
Discount department store operation Kolya company. New York Stock Exchange: KSS The third quarter of 2024 was admittedly terrible. Outgoing CEO Tom Kingsley didn’t hide from the bushes, saying they weren’t satisfied with the third quarter results and that they needed to “perform at a higher level.” The company said analysts’ consensus estimates for the third quarter ranged from 8 cents to 20 cents. Revenue fell 8.5% YoY to $3.71 billion versus consensus estimates of $3.63 billion. Operating profit fell to $98 million compared with $157 million in the same period last year. The only positive aspects were a 20 bp increase in profitability. to 39.1% and a reduction in inventories by 3%.
Downward forecasts lower expectations for all of 2024
Kohl’s issued downward guidance for full-year 2025, with earnings per share expected in the range of $1.20 to $1.50, well below the $1.80 consensus estimate. Revenue is expected to fall 7% to 8%, or $15.26 billion to $1.54 billion, compared with the consensus estimate of $15.68 billion. Comparable sales are forecast to decline 6% to 7%.
Was the third quarter a kitchen sink quarter for the new CEO?
Many investors believe this downright ugly quarter may have been a “kitchen sink quarter” as it set the bar low for new CEO Ashley Buchanan. Buchanan was CEO of arts and crafts retailer Michaels Companies after 13 years with the company. Walmart Inc. New York Stock Exchange: WMT. Buchanan will be the third CEO in three years to try his luck at change when he takes over the company on January 15, 2025.
Best Buy: AI-powered consumer electronics upgrade cycle may not happen
The artificial intelligence (AI) boom was expected to push major electronics retailer Best Buy Co. New York Stock Exchange: BBY Results are higher ahead of the holiday season. It was believed that artificial intelligence would trigger a new laptop upgrade cycle and a revival of the consumer electronics upgrade cycle in the second half of 2024.
The Grinch came in early October to ruin the holidays
Unfortunately, expectations were not met following the release of the company’s third quarter 2024 earnings report. Best Buy reported third-quarter earnings per share of $1.26 for the quarter ended November 2, 2024, missing the consensus estimate by 4 cents. Revenue also fell 3.2% YoY to $9.45 billion, well below the consensus estimate of $9.63 billion.
Downward forecasts lower expectations for all of 2024
Best Buy posted full-year 2025 earnings per share forecast of $6.10 to $6.25, versus consensus estimates of $6.26. For full-year 2024, revenue is expected to be between $41.1 billion and $41.5 billion, up from $41.54 billion. Full-year comparable sales are expected to fall 3.5% to 2.5% YoY, worse than previous estimates , as the decline was between 3% and 1.5% YoY.
Blame weak consumers and election distractions
Management blamed the sluggish sales on a challenging macroeconomic environment coupled with election-related distractions. Best Buy plans to hold more sales and discounts to reduce inventory, with a focus on boosting membership sales to boost profits.
Best Buy CEO Corey Barry remains optimistic, saying, “We’re excited and feel well-prepared for the holiday season with compelling offers, inspiring in-store and digital merchandising, and competitive fulfillment options.”
Barry concluded: “We continue to see a consumer who is looking for value and sales, but also someone who is also willing to spend money on high-priced products when they need it or when new, attractive technology comes out. As such, we are balancing our optimism both in the industry and in our unique position with a pragmatic approach to the potential for uneven customer behavior in the future.”
Foot Locker: Fills the Footwear Gap with Hoka and Running Brands
Retail trade of footwear and clothing Foot Locker Inc. New York Stock Exchange: Florida had a love-hate relationship with Nike Inc. New York Stock Exchange: as the company appeared to abandon its wholesale strategy in favor of a direct-to-consumer (DTC) strategy, only to change course. Foot Locker has filled the niche of other shoe brands such as Hoka from Deckers Outdoor Co. NYSE: CHAMBER and further from About Holding AG New York Stock Exchange: Honor. With Nike back on board, Foot Locker is focusing on its latest models to drive demand. However, at this time of year it may already be too late.
Third quarter results were disappointing, but comparable sales and inventories were bright spots
Foot Locker reported third-quarter 2024 earnings per share of 33 cents, missing the consensus estimate by 7 cents. Revenue fell $1.4 YoY to $1.96 billion, missing the consensus estimate of $2.1 billion. Encouragingly, like-for-like sales rose 2.4% YoY. If we add global Foot Locker and Kids Foot Locker into the equation, comparable sales are actually up 2.8% year over year. Champs Sports and WSS banner sales also increased by 2.8% and 1.8% respectively. Inventory levels fell 6.3% YoY.
Full year outlook looks weak as Foot Locker remains cautious
Foot Locker is releasing fourth-quarter 2024 earnings per share of 70 cents to 80 cents, well below analysts’ consensus estimate of 95 cents. Revenue is expected to fall 3.5% to 1.5%, resulting in a range of $2.30 billion to $2.35 billion, versus the consensus estimate of $2.34 billion. Foot Locker lowers full-year 2024 gross margin to 28.7% and 28.8% to 29.7% from 29.5%.
Foot Locker CEO Mary Dillon commented, “While our early November trends were below our expectations as consumers held back their spending ahead of the holiday season, we saw a meaningful and positive acceleration during the key Thanksgiving week period, particularly in stores.”
Dillon opted to remain cautious, saying: “Despite this strong performance, we are taking a more cautious view and lowering our full-year sales and profit forecast due to a more favorable promotional environment and weaker consumer demand outside key sales periods.”
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