4 retail predictions for 2022: Morning Brief

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Monday, December 27, 2021

Like Yours and Julie Hyman joked on Yahoo Finance Live last week, the sharp drop in the US savings rate over the holidays was indicative of how the crucial buying season likely played out.

Being right always feels warm and confusing on the inside, which is where I am emotionally after digesting an impressive body of holiday retail sales data.

Non-auto vacation retail sales grew 8.5% year-on-year, according to Mastercard SpendingPulse. Online sales are up 11% from a year ago, on no less difficult pandemic peak comparisons. “Consumers splurged throughout the season, with clothing and department stores experiencing strong growth as shoppers looked to showcase their best clothes,” said Steve Sadove, Senior Mastercard Advisor and Former CEO by Saks.

They’ve been splurging, as the graphic below shows.

Consumers have been spending aggressively this holiday shopping season.

It is now reasonable to expect a few retailers to post positive sales and profit pre-announcements in the coming weeks.

The bullish data for the holiday season inspired me to whip up some retail forecast for 2022. On days like this, I’d love to be a stock analyst again because I see a few retail stocks that are ready. to dive (and a few that could explode). Alas, those days are over for me… so take advantage of these four predictions and do what you want with them.

Prediction # 1: Kohl’s changes direction.

I was surprised at how much Kohl (KSS) – led by CEO Michelle Gass – fended off attacks from activist investors in 2021. In April, he secured settlement with activist investors led by Macellum. Now Engine Capital is pushing for big changes. I have read every memo written by these activists (among other aspects of the reporting process) and they are all 100% on point. Kohl’s has generally performed very well over the past five years in terms of equity and margin performance relative to its peers. The stock alone is barely higher, compared to a 108% gain for the S&P 500. Kohl’s has a history of over-promises and under-deliveries. How is that acceptable for a public company run by well-paid executives? How does Kohl’s board of directors not shake things up after seeing the company name dragged through the mud twice by high profile campaigning campaigns in a year? None of this is acceptable, and the winds of change could blow through Kohl’s C-sequel next year.

Prediction # 2: Gap sees activists knocking on its doors.

As you can see here, I was very passionate about the Major Gap Profit Disclaimer (GPS) which absolutely hammered the stock. I hate when investors lose money… and I especially hate when it happens because executives make glaring mistakes. The warning was disturbing and embarrassing for the well-regarded management team. But I digress. If Gap has another quarterback stench (which would be its significant vacation results), it’s reasonable to expect activist investors to rush and stir for a business teardown. Gap executives did all the retail work in 2020 to create Old Navy (the spin-off has been dropped) so the process was done. In this market, retailers with a singular vocation (see the beautiful valuations of the recent IPOs Allbirds, ON Holdings and Warby Parker) are rewarded rather than the conglomerates of yesteryear (Gap). Seeing Gap trading at a P / E ratio of 7.9 times forward earnings is almost ludicrous given the portfolio of brands he owns. The company mthe market cap is only $ 6.45 billion.

Predictions # 3 & 4: Fallout That Will Happen… And Will Not Happen.

Macy’s (MCEO Jeff Gennette added fuel to the fire last month when give in to militant pressurehe said the company is considering going out of business with its e-commerce operations. Since then, the stock has generally been on fire. That said, I don’t think the spin-off is happening and Gennette’s commentary was simply designed to increase inventory until 2022. After covering Macy’s for a while, it’s nothing for the company to do. hate more than drastic change and bow to outside pressure. I think he hates the idea of ​​stepping into the future of retail without having full control of his online operations. Wait for the company to say in early 2022 that it won’t be running the business, noting that it’s crucial to have in-house during a post-pandemic clothing buying cycle.

As for a department store that could run a spin-off, that would be Nordstrom (JWN). Recent reports indicate that the company is looking to create Nordstrom Rack, the reports I believe are on the mark. Unlike Macy’s, Nordstrom’s management team has never been afraid to take bold steps to improve the business. I think Rack’s patchy performance over the past few years frustrates Nordstrom, which would benefit from focusing on its core brand. Expect Nordstrom Rack to separate in 2022.

Have a nice day. Have a good negotiation!

Tips

Notes from Goldman for your trading desk: I have to say that Jan Hatzius, chief economist at Goldman Sachs in the United States, made the headlines in December. First of all, Hatzius cut his GDP forecast for 2022 for next year because President Joe Biden’s Build Back Better plan has gone up in smoke (for now). Now Hatzius has come out with two predictions for 2022 that are worth your time. “With labor demand burning and improved unemployment benefits now expired, we expect the unemployment rate to return to its pre-pandemic low of 3.5% by the next year. end of 2022. Labor force participation is expected to remain below pre-pandemic levels. trend, although it seems largely voluntary or structural, ”Hatzius wrote in a new note to clients. In the same breath, Hatzius said inflationary pressures were not going anywhere just yet. “The current inflation push is likely to get worse before it gets better, but by the end of next year we expect core PCE inflation to drop to 2.5% . To be sure, the main driver of our forecast – the partial resolution of supply-demand imbalances in the durable goods sector – is difficult to time. But we don’t consider wage growth or underlying inflation expectations to be inconsistent with the Fed’s 2% inflation target, so we expect inflation to start falling by. significantly. “

Dow Officers: It has been a remarkable year for Home Depot stocks, as the Bespoke research agency pointed out below. What makes the inventory gains since the start of the year more impressive is that sales growth has slowed in the home improvement chain in 2021 after major pandemic gains in 2020. Profit margin expansion also slowed down. The message: The sustained sales of new and existing homes over the past two years have created a pipeline of home improvement projects that could extend well beyond 2022. Meanwhile, Microsoft’s 51% rise since the start of the year is just a small reason the company won the Yahoo Finance award. coveted Company of the year award for 2021.

I can’t help but watch Bezos: Let the Daily Mail take a new photo (see below, full story here) of 57-year-old Amazon founder Jeff Bezos on vacation in St. Barts over the Christmas break. Jeff, if you’re reading this newsletter drop me a line about protein powder I should order from Amazon because you look amazing. Vin Diesel, take some notes.

Other business news: Beware of lower executives in state-owned companies (and boys are tons of them), activist investors are entering 2022 with a lot of momentum (again). Barron’s Carleton English reports $ 18.3 billion in capital was deployed in 90 activist campaigns this year, up 16% from a year ago. The flagship activist campaign of the year: The successful No.1 Engine campaign against the massively overpaid and rather disappointing Exxon executives. Patrick Temple-West and Kiran Stacey at the Financial Times dive into UK asset manager Legal and General Investment Management demanding disclosure changes at Moderna, especially around COVID-19 vaccine prices. Keep an eye out for this one. Another victory for Barron’s, with their team highlighting major stock purchases at Harley-Davidson. H Partners now owns 8% of the outstanding shares of Harley. I can’t say I’m surprised in light of what Harley CEO Jochen Zeitz recently told me on its fallout from their electric vehicle operations. During this time, NBC News’ Vicky Collins Followed The Money And Ended Up In Colorado, where the ski community stands to lose billions of dollars in revenue due to global warming. If you are curious about the long-term impact of the pandemic on the economy and society (and you should be … I guess you are investing in one form or another), New York Times Erica L. Green takes a peek to what’s going on right now inside Liberty High School in Bethlehem, PA.

Brian Sozzi is an editor and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

What to watch today

Economy

  • 10:30 a.m.ET: Dallas Federal Reserve Manufacturing Activity Index, Dec. (14.0 expected, 11.8 in November)

Earnings

Also read: Father Christmas rally watch: what to know this week

Politics

  • President Biden meets with governors and their COVID-19 response team at 11:30 a.m. ET regarding the Omicron variant. Then he will travel to Delaware, where he will receive his weekly economic briefing practically this afternoon.

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