A weakening U.S. consumer has been a theme with us for months, and we have routinely made the point that the strong performance of the XRT and the XLY have masked some fairly dismal single stock price action by some brand and market leaders.
Case in point would be the earnings misses reported by COH and RL back in the summer with their June qtr results, coupled with less than stellar forward guidance. Both stocks have been massive under-performers since, despite the XRT and XLY back within striking distance from the all time highs made in the last couple months.
COH is down about 4% since their fiscal Q4 results on July 30th, and down almost 3% on the year. The technical set up into next week’s Q1 print looks less than attractive with momentum apparently abating in the stock with the 50 day moving average declining. The options market is implying a one day move of almost 8%, which seems surprising except for the fact that the average one day move over the last 4 qtrs has been about 10.3%. One caveat here for those looking to get all “beared up” into the results, short interest has been rising, nearing 52 week highs at almost 7.5%, this is not a story where the bad news is in some way lost of investors.
The technical set up for RL only reinforces the notion that the high end consumer may be getting tad strapped. RL is down almost 17% since reporting its fiscal Q1 results on Aug 7th, and desperately holding on to its 5% ytd gains despite trading at the lowest levels since January. The stock chart looks to be in an apparent free-fall. RL should report in the first week of November and the options market is implying about a one day move of nearly 6%, which is a tad rich to the 4 qtr one day avg move of about 4.5%
Make no mistake, there have been outliers in certain pockets of retail, like NKE, SBUX and WFM, but weakness (in results, guidance and price action) from big box retailers such as COST, TGT & WMT to department stores like M and JWN over to restaurants like DPZ and YUM suggest that the outliers are just that. I am inclined to press consumer discretionary shorts, but prefer to do so on bounces if they ever come!