Options trade as two retailers report earnings during Thanksgiving week | Wilnesh News
Six well-known retailers released quarterly earnings this week. Kohl’s, Macy’s, Best Buy, Dick’s and Burlington will report results before the market opens on Tuesday, Nov. 26, with Nordstrom reporting after the close. Their results may provide some insight into the state of the U.S. consumer heading into the holiday shopping season, and whether those who have significantly underperformed the market so far this year, such as Kohl’s (KSS) (-40% year-to-date), can catch up with them ‘s competitors significantly outperformed Burlington Stores (BURL) (+47%). Household debt rose slightly in the third quarter of the year, but delinquency rates remained high, according to the New York Federal Reserve. Revenue at both companies fell sharply during the pandemic shutdown, but Burlington’s has continued to grow since then even as Kohl’s struggled. Kohl’s managed to keep earnings per share relatively flat despite lower revenue, while Burlington’s earnings per share grew. These different growth rates (likely due to different customer demographics) result in significantly different valuations. Kohl’s currently has a price-to-sales ratio of 0.11 and is starting to look “cheap” as it trades at less than 10 times expected earnings estimates. And Burlington Stores, which appeals to a more brand-conscious and slightly more affluent crowd, has a price-to-sales ratio of 1.8 and currently trades at 36 times earnings. If growth rates over the past year or so are maintained, valuations are reasonable, but if growth rates decline, valuations are toward the upper end of the acceptable range. KSS YTD Mountain Kohl’s, YTD Wall Street’s view is that Kohl’s earnings will continue to face significant pressure. Part of this skepticism stems from “alternative data,” which refers to non-traditional data sets used in financial analysis to gain unique insights into market trends, consumer behavior, or company performance. Unlike traditional financial data (such as earnings reports, balance sheets, and economic indicators), alternative data is often collected from unconventional sources that provide instant or near-instant information, such as transaction data from credit card companies, foot traffic data from mobile devices Even satellite images of parking lots. One of the sources for this data is Placer.ai, which “generates panels with over 25 million average monthly (mobile) users.” Of those, about 55% are on iOS and 45% are on Android. The number of observed customers at Burlington stores increased 5% year over year over the past 91 trading days, while Kohl’s stores saw a 3.2% decline, according to Placer.ai. The surge in the use of alternative data by institutional investors helps explain why Kohl’s shares are down more than 18% since Oct. 21, while Burlington shares are up more than 12% in the same period. Trading Assuming alternative data points to performance from each of the two companies, and that recent price action reflects a pre-emptive move, we might infer that post-earnings share price action will be more muted as some investors have positioned themselves accordingly. Traders anticipating a more subdued move will want to sell option premiums before the event occurs. Burlington hinted that the implied move relative to earnings would exceed 8%, slightly above the 10-year average of 7.5%. Kohl’s stores grew at a whopping 11.6%, compared with a 10-year average of about 7%. To aim for 8% or less volatility in Burlington, trade the Nov 29 Weekly/March 260/320 wide straddle swap as follows: Sell BURL Nov 29 $260 Put Buy BURL Mar 21st $260 Put Sell BURL 11/29 $320 Call Buy BURL 3/21 $320 Call Aiming for gains of 11% or less at Kohl’s stores requires a slightly more nuanced strategy, as the prices are higher Stocks with low KSS do not have long-term strike prices that are exactly consistent with shorter dates. However, the return characteristics are generally similar using the following “diagonals”: Long KSS April 17 $15 put short KSS November 29 $15.50 put short KSS November 29 $18.50 call long KSS April 17 $20 Call Disclosure: (None) All Opinions expressed by CNBC Pro contributors are theirs alone and do not reflect the views of CNBC, NBC UNIVERSAL, its parent or affiliates, and may have been They were previously broadcast on television, radio, online or other media. The above is subject to our Terms and Conditions and Privacy Policy. This content is for informational purposes only and does not constitute financial, investment, tax or legal advice or a recommendation to purchase any security or other financial asset. The content is general in nature and does not reflect any individual’s unique personal circumstances. The above may not apply to your particular situation. Before making any financial decisions, you should strongly consider seeking advice from your own financial or investment advisor. Click here to view the complete disclaimer.
