Last was supposed to be the week where all retailers took another leg lower. Amazon.com, Inc. (NASDAQ:AMZN) had its annual Prime Day this week. Those numbers were supposed to be stellar. Analysts were supposed to come in and cut estimates on other retailers. Downgrades were supposed to pour in and retail stocks were supposed to fall.
But, that hasn’t really been the case. Amazon had its big Prime Day event and the numbers were much better than expected (sales up 60% year over year). However, the SPDR S&P Retail (ETF) (NYSEARCA:XRT) is actually up almost 3% since Monday’s sell-off. Wal-Mart Stores Inc (NYSE:WMT) stock is up more than 4% in that time-frame. Target Corporation (NYSE:TGT) stock, Kohl’s Corporation (NYSE:KSS) stock and Macy’s Inc (NYSE:M) stock are all up approximately 6%.
In other words, investors didn’t really seem to care about Prime Day’s big numbers, nor how that was apparently a sign of the times for dying retailers. Instead, they focused on Target’s big guidance boost and Goldman’s bullish note on Walmart.
It seems we may be at an inflection point in retail. Amazon’s doing great, yes, but other retailers are also starting to successfully defend themselves. Investors are starting to flirt with the idea that, just maybe, Amazon won’t dominate all of retail after all.
So, what’s the investment takeaway here?
It may be time to start buying the big retailers. And, when you talk about buying big retailers, you should always start with the biggest: Walmart stock.
Walmart and Target Signal an Inflection Point
The first bit of good news in the retail sector last week came from Target. The much-maligned retailer reported improved traffic and sales trends in the first two months of Q2. Comparable sales are now expected to be modestly positive in Q2. If true, that would end a multi-quarter streak of negative comparable sales growth. Importantly, management noted that the operational improvements were driven by some of Target’s strategic initiatives, including exclusive brand roll-outs and the Target Restock program.
In short, investors learned that Target’s new anti-Amazon programs are driving improved traffic and sales trends.
The second bit of good news in the retail sector last week came from Goldman Sachs, which added WMT stock to its Conviction Buy list. Analyst Matthew Fassler argued that WMT is as well-positioned as any mass-market retailer to succeed in the face of e-commerce and Amazon competition. He cites Walmart’s scale, small market focus, inventory discipline, improving return on capital and an attractive valuation as reasons to be bullish on WMT stock.