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Why Costco, Cole, and Five Slip Down Under Today | Motley asshole

What happened

Including retail stock costco (recovery -12.96%)And kohl (KSS -11.35%)And five below (five -14.35%) They were shocked today after the retail giants including Walmart And Goal I badly miscalculated final earnings estimates and first-quarter earnings reports. The two companies also cut short their guidance for the year, warning of continued inflation challenges and supply chain disruptions.

While there’s no company-specific news on Costco, Kohl’s, and Five below, the three companies will be reporting earnings in the next two weeks, and investors seem to fear similar headwinds.

As of 11:05 a.m. ET, Costco’s stock is down 11.4%, while Kohl’s is down 10%, and five below is down 9.1%. Meanwhile, Target lost 24.4% after its earnings failed this morning, and Walmart is down 17% over the past two days since earnings were announced yesterday.

Image source: Getty Images.

So what

What appears to be happening in the retail sector is that stocks are being “re-rated” based on economic headwinds like inflation and supply chain issues. This means that ratings, arguably inflated during the pandemic, are declining overall.

Retailers are also entering tough comparisons as tailwinds from stimulus spending and pandemic hoarding a year ago dissipate, and consumer spending shifts back to services like travel and restaurants rather than goods, Target’s management said today.

Costco may be the best example of what the market sees as an expensive retail stock. Although the warehouse chain was the best performer, Costco’s price-to-earnings ratio rose to 35, nearly double that in Standard & Poor’s 500, even when the company operates in a slow-growing sector. This rating makes Costco one of the most expensive brick-and-mortar retail stocks. While it is worth trading at a premium over its peers, it is reasonable to question whether its valuation has become exaggerated.

The company continues to post solid results, with sales up 8.7% in April, but the bottom line could feel tight when the retailer reports earnings after hours on May 26. Analysts are expecting earnings per share to rise from $2.75 to $3.05. , according to the report.

Kohl’s is much cheaper than Costco, but it’s also a much weaker business. The company has been looking for a strategic direction in recent years, in cooperation with Amazon To accept returns and sub-leasing of excess space to retailers like Aldi. While the company has been making solid profits, supermarket chains tend to do poorly during downturns because they primarily sell discretionary items, and Kohl’s doesn’t control its own inventory the way Costco does its Kirkland brand.

Kohl’s is due to report its first-quarter earnings tomorrow morning, and analysts expect earnings per share to shrink from $1.05 to $0.70.

Finally, Five Bell, a shopping mall chain that specializes in items like toys and games for $5 or less, should benefit from economic re-opening as its business model relies on store traffic and a “treasure hunt” experience to search for its merchandise. However, with a highly discretionary model and its product range, the company is likely to feel the impact of cost inflation and supply chain constraints, especially since it is limited in its ability to raise prices.

Five below is expected to report first-quarter earnings in the first week of June, and analysts see earnings per share falling from $0.88 to $0.59.

What now

The good news for retail investors is that the current inflationary conditions and economic headwinds are temporary. While the next few quarters may be challenging, the economy should eventually return to a safer position.

We’ll learn more about these stocks once they report their next quarterly earnings, but continued selling in this sector could be a good opportunity to buy shares of high-quality companies like Costco.

2022-05-18 16:33:07

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