Wal-Mart, Macy's rally after fears about US holiday season subside

The world's largest retailer Wal-Mart delivered fourth-quarter results with good news on two fronts: online and brick-and-mortar sales.
The world's largest retailer Wal-Mart delivered fourth-quarter results with good news on two fronts: online and brick-and-mortar sales.PHOTO: AFP

NEW YORK (BLOOMBERG) - Shares of Wal-Mart Stores, Macy's and other retailers rallied on Tuesday (Feb 21) after results from the crucial Christmas season exceeded Wall Street's pessimistic expectations.

Wal-Mart delivered fourth-quarter results with good news on two fronts: online and brick-and-mortar sales. The world's largest retailer is seeing its best US growth in more than four years on a same-store basis, and it appears to be finally challenging Amazon.com in e-commerce. Macy's also posted rosier earnings than expected.

The news soothed investors after months of fretting about the holiday season. Alarms about US retailers only grew louder in January, when department-store chains released preliminary sales data that painted a dim picture, sending stocks tumbling.

"A lot of retailers are missing their numbers, so expectations were pretty low," said Brian Yarbrough, an analyst at Edward Jones. The Wal-Mart results were especially impressive against that backdrop, he said.

Home Depot also topped analysts' estimates for the latest quarter, though it was helped more by America's home-renovation frenzy than holiday spending. Sales at stores open for more than a year - a key benchmark for investors - rose 5.8 per cent. That beat the 3.5 per cent prediction, according to Consensus Metrix.

Wal-Mart's stock climbed as much as 4.2 per cent to US$72.28, marking its biggest intraday gain since May. Shares of Macy's rose 3.7 per cent, while Home Depot advanced 1.9 per cent. Other retailers, such as Gap, also gained.

Investors have been bracing for a tough earnings season. Overall, retailers are expected to post same-store sales growth of 0.3 per cent for the fourth quarter, according to Retail Metrics. That would be the weakest performance since 2013.

The department-store industry has been especially hard hit. Macy's, Kohl's and J.C. Penney all reported weak preliminary holiday results last month. Macy's also pushed ahead with a plan to cut 100 underperforming stores and about 10,000 jobs.

A company like Macy's still faces long odds, Oliver Chen, an analyst at Cowen & Co, said in a report. Discount chains and Amazon pose a formidable threat, and sluggish mall traffic is weighing on sales.

With all those challenges, the earnings were "encouraging," he said. "Don't ignore Macy's."

At Home Depot, the chain is planning to open three US stores this year after not opening any from 2014 to 2016.

"Our business was stronger than anticipated in the fourth quarter," chief financial officer Carol Tome said in an interview. "As we look to 2017, we're guiding very strong sales growth. Housing is going to be a big contributor."