Weakness in Retail

The broader retail space has been weak relative to the S&P 500 so far this year. Much of this weakness came after Target’s (TGT) and Walmart’s (WMT) earnings calls, in which management noted margin compression, inventory gluts in certain categories, shifting consumer preferences, and weakness in consumer spending as inflation in food and energy reduces discretionary budgets. Institutional subscribers can view our Conference Call Recaps on these two companies by clicking here. On a YTD basis, the VanEck Retail ETF (RTH) has underperformed the S&P 500 (SPY) by 4.5 percentage points, trading down by 18.2% as of today. A chart of the relative strength of RTH vs SPY over the last year is shown below.

Retail Stocks vs S&P 500

Within the S&P 500, there are 21 stocks that make up the Retailing industry, and in the table below, we have outlined the performance of the 10 largest stocks by market cap.  You’ll notice that companies like Costco (COST) and WMT aren’t listed, but that’s because they are actually part of the Food and Staples Retailing industry.  As you can see, seven of these ten stocks are down more than the average S&P 500 member on a YTD basis, and six are further from their respective 52-week highs than the average S&P 500 member. However, only two of these stocks are below their pre-COVID highs, whereas more than a third of (35.8%) of S&P 500 components are below their pre-COVID highs.

Largest Retailing Stocks

Below are charts of each of the 10 stocks listed above since the start of 2019. Included on each chart is the percentage that each is off its 52-week high. As you can see, AutoZone (AZO), Dollar Tree (DLTR) and Dollar General (DG) have held up relatively well amidst broader market weakness, likely due to their positioning on the value chain. The market seems to believe that consumers will move down the value chain amidst rising inflation, which makes our latest Little Known Stocks Report even more compelling.  Click here to become a Bespoke premium member today!

Retail Stocks Retail stocks