But another report from Wells Fargo Securities analysts released earlier today reiterated what analysts are seeing by way of outlook: the retail sector is better positioned this year than it was in 2017. And in a segment analysis, analysts at the firm see the recent tax reform measures as significantly boosting earnings per share by as much as 15 percent.
In the weekly sales report, Michael Niemira, chief economist of The Retail Economist LLC, said the sales index fell 2.3 percent for the week ended Dec. 30. On a year-over-year basis, sales showed a “strong gain” of 3.9 percent. The results follow a report from Mastercard that showed retail sales gaining 4.9 percent this holiday shopping season.
Niemira said weekly sales in the post-Christmas period, which includes gift-card redemptions, merchandise exchanges and returns, “were hurt by the arctic freeze affecting the eastern two-thirds of the nation, which in turn caused many consumers to remain in their warm homes.” The economist also said when the dust settles, the 2017 holiday season will play out to be one of the best in years.
In the Wells Fargo report, senior analyst Ike Boruchow said for the first time in two years, the retail sector is a worthwhile investment. “Following multiple years of challenged fundamentals and increasing investor skepticism, we actually see a somewhat favorable setup for retail into 2018,” he noted. “While we acknowledge that the high-level concerns that have cast a dark cloud over the space still exist today (weak store traffic, accelerating e-commerce penetration, Amazon), we are simply saying that there are finally some legitimate reasons to own the space.”
Boruchow said although 2017 started out lousy for the sector, it ended on a high note with strong fundamentals, robust holiday sales and well-managed inventories. Moving forward, the recently adopted tax reform plan is expected to show an immediate, positive impact on the bottom line — which could include an approximate 15 percent earnings per share gain for domestic companies.
In the report, the analyst upgraded Ulta Beauty to “outperform” and raised his price target on the stock to $275 from $220. And under the current scenario he outlined, Boruchow reiterated his top picks, which include PVH Corp., Ulta and Tapestry.