The holiday shopping season is getting close, and retailers are preparing for what they suspect will be enough shoppers in the aisles to make 2011 a profitable year.
A recent survey of chief marketing officers (CMOs) at U.S. retailers, conducted by accounting firm BDO USA, showed that although they’re cautious heading into the holiday season, retailers are optimistic about their prospects going forward.
Those surveyed say they expect holiday sales to rise about 3% for the year, which is actually lower than the 3.5% rise in sales the group of CMOs predicted in BDO’s 2010 survey. Most retailers say they’ve kept their holiday season inventory purchases about the same as last year, as they’ve anticipated how a high unemployment rate and other economic issues will affect spending.
The most interesting thing about the survey is that, despite their caution, CMOs at major retailers overwhelmingly say they’re expecting increased sales this holiday season. Overall, 48% of those surveyed anticipate their holiday season sales will stay about the same, while 41% expect their sales to rise. Only 11% see a decline.
Among CMOs from some of the biggest retailers, 67% say holiday sales are expected to rise, while just 33% see their sales staying about the same. No CMOs from large retail chains expect their sales to fall.
If these CMOs are even close to being right, retailers could have a much-better-than-expected holiday season. And this could translate into some retail holiday cheer for options players willing to take a bullish bet.
One of the best ways to play the retail sector is via call options on the SPDR S&P Retail ETF (NYSE:XRT). The SPDR S&P Retail ETF seeks to replicate as closely as possible, before expenses, the total return performance of the S&P Retail Select Industry Index. Basically, XRT is a proxy for the entire retail sector.
On Wednesday, XRT shares slid more than 4%. That decline caused several December call options to sink in value, and now those calls are trading at very attractive levels. For example, the XRT Dec 50 Call sank 22.4% on Wednesday, falling all the way down to $3.64.
For retail sector bulls, that represents a big holiday discount that should definitely be considered. If the sector turns upward, you could have yourself one merry Christmas.
Disclosure: At the time of publication, Jim Woods held no positions in any of the stocks mentioned in this article.
