Retail stocks went on a run Friday — with Gap Inc. leading the way higher after chief executive officer Richard Dickson’s turnaround plans showed some signs of traction.
Gap’s stock was up 12.8 percent to $24.87.
Apparently the retailer, one of the pioneers of the movement toward casualization, has some pretty good coattails. Or at least Gap’s rediscovered confidence reinforced promising quarterly reports from across fashion and investors just cut loose.
Also gaining ground were Macy’s Inc., up 8.2 percent to $16.30; Abercrombie & Fitch Co., 7.4 percent to $152.07; Victoria’s Secret & Co., 6.1 percent to $37.09; VF Corp., 5.1 percent to $19.74; PVH Corp., 4.4 percent to $103.87; Tapestry Inc., 4.4 percent to $58.91, and Urban Outfitters Inc., 4.3 percent to $38.98.
“People are looking for permission to own [retail stocks] and I think that through earnings so far you’ve been given permission,” said Simeon Siegel, an analyst at BMO Capital Markets.
Siegel said investors have been worried over business lately, wondering if trends were driven by unseasonably warm weather or something else.
“Companies on earnings calls so far have been very clear that as the weather broke, the trends began to improve,” he said. “So I think the weather fear is played out.”
Retailers that have reported third-quarter results have also seen some “pretty nice gross margin expansion,” he said.
“The concern was, we were getting farther away from the COVID[-19] gross margin gift and we were going to start seeing a material increase in promotions,” Siegel said.
Instead, brands seem to be able to hold price, supporting gross margins.
But none of that changes the stuck-in-the-middle dynamic that’s defined retail this year.
The economy dodged the much-feared recession and unemployment has remained low, but the price inflation that built up after the pandemic has hurt consumers’ wallets.
One thing that has changed is the election.
After a year of uncertainty, President-elect Donald Trump is headed back to the Oval Office and even though that brings the threat of new trade wars and other potential disruptions, retailers and consumers at least know what path they’re taking into the future.
And for now, investors seem willing to look past the trade component of that.
“Realistically, this sector should be riddled with tariff concern,” Siegel said.
But Wall Street, for all its sophistication and data savvy, is still a place driven by people.
“I don’t know that people all of a sudden feel massively better about the health of the U.S. consumer, but I think people are effectively believing that they’ve been given permission to look past it,” Siegel said.
“It’s acting like a human market more so than an efficient market, more so than a rational market,” he said. “It’s reactive, based on emotion.”
That jibes with retail, where the industry is starting to feel more in the spirit of the holidays.
Gap pushed its third-quarter operating income up 42 percent to $355 million while sales rose 2 percent to $3.8 billion and the outlook for the full year was raised.
“We are excited about the holiday season,” Dickson told WWD on Thursday. “We have already seen a strong start.”
Gap wasn’t the only company feeling some of the holiday spirit while beating quarterly results and raising forecasts.
Earlier in the week, Walmart Inc. said its namesake U.S. business pushed comparable sales up 5.3 percent, picking up market share as the company beat its third-quarter profit projections and raised its outlook for the year.
Doug McMillon, president and CEO of Walmart, told analysts that “Households earning more than $100,000 made up 75 percent of our share gains.”
Not everyone was feeling quite so bullish, however.
Target Corp. turned in disappointing results for the third quarter pointing to hesitant spending on discretionary goods. Winter coats were a soft spot, but the company said business picked up where the temperature dropped.
Maybe the rally was both a retail and a weather report, acknowledging the season’s first snowfall in New York.
Shares of Target gained 2.8 percent to $125.02 after a big drop earlier in the week and Walmart closed up 2.3 percent to $90.44.
