10 retailers grab 66% of holiday-quarter sales
Cyber Monday might kick off a month-long shopping spree for consumers. But investors are shopping for ways to make money on retail stocks, where winners and losers will be set over the next few critical months.
Revenue reported by retailers in the broad Standard & Poor's 1500 is expected to rise 5.4% during the fourth quarter to hit $567.4 billion, according to a USA TODAY analysis of data from S&P Global Market Intelligence. Just 10 companies are expected to haul in 66.7% of all the revenue retailers in the S&P 1500 are seen collecting during the pivotal fourth quarter. That's up slightly from the 66.6% claim these same companies took last year. The analysis looks at companies in the retail industry group as well as those in the foods and staples retail category.
It's a critical time for retailers and investors, since 27% of total retail revenue comes from the fourth quarter. Nowhere can the rise of massive winners in retail be seen better than with Amazon (AMZN). The online retailing giant is expected to haul in 7.9% of all revenue reported by retailers in the S&P 1500 during the fourth quarter. If analysts are correct, Amazon's piece of the retail pie will rise from the 6.6% slice it claimed in the fourth quarter of 2015. Amazon's piece of expected fourth quarter revenue is almost twice the 3.7% slice Target (TGT) is seen taking, which is down from 4% last year.
"We see further market share gains (versus traditional retailers) in Amazon's core electronics and general merchandise offerings, thanks to a focus on providing value to consumers through selection, price and convenience," says Tuna Amobi, analyst at CFRA, in a note to clients.
Shares of Amazon are up nearly 14% this year to $767 a share, but analysts see the stock having 22% more upside over the next 18 months.Part of Amazon's rise is explained by the fact the online retailer's revenue is expected to jump by 25% in the fourth quarter to $44.7 billion. But it's also due to weaker growth by key rivals: Walmart's (WMT) revenue is expected to rise just 0.7% in the fourth quarter and Target's falling 2.6%.
S&P 1500 RETAILERS EXPECTED TO TAKE BIGGEST % OF HOLIDAY QUARTER REVENUE
Company, symbol, retailers' % of total S&P 1500 retail expected revenue*
Wal-Mart Stores, WMT, 23%
CVS Health, CVS, 8.2%
Amazon.com, AMZN, 7.9%
Walgreens Boots Alliance, WBA, 5.2%
Costco Wholesale, COST, 5%
Kroger, KR, 4.8%
Home Depot, HD, 3.8%
Target, TGT, 3.7%
Lowe's, LOW, 2.7%
Best Buy, BBY, 2.4%
Source: S&P Global Market Intelligence, USA TODAY, * based on estimates
Retail stocks so far this year have been trending higher along with the market. The S&P 500 Retailing Index is up 8.1% this year so far, roughly in line with the 7.7% gain this year by the S&P 500. But analysts are looking for some standout individual performances.
Two smaller companies, Core-Mark (CORE) and Select Comfort (SCSS), are expected to chalk up the biggest revenue growth among S&P 1500 retailers. Analysts predict revenue at Core-Mark, a company that distributes mostly consumable products to convenience stores to jump 67% in the fourth quarter to $3.8 billion. Select Comfort, a seller of bedding products, is expected to post 48% higher quarterly revenue of $317 million. Specialty retailers able to carve out a niche away from the dominance of Amazon are also finding success. Mall-based cosmetics retailer ULTA Salon (ULTA) is expected to boost its fourth-quarter revenue by 19% to $1.5 billion.
Yet, while online retail continues to grow, ULTA and other physical retailers show there's still room for traditional retailers to strike back, even online. Shares of Walmart are up 16% this year, topping Amazon's 14% stock gain, as investors see the company getting traction online including from its recent buy of online retailer Jet. Walmart is still expected to bring in more than $130 billion in fourth-quarter revenue, or 23% of total S&P 1500 retail revenue, which is greater than any other retailers' share. Even Amazon's.
"We expect e-commerce sales (at Walmart) to rise about 25% to $18 billion (in fiscal 2018) as they become a key source for long-term growth," says Joseph Agnese, analyst at CFRA in a note to clients.
FASTEST GROWING RETAILERS IN Q4 2016
S&P 1500 retailers expected to post the largest increases in revenue in calendar fourth quarter 2016
Company, symbol, % ch. Q4 2016 revenue*
Core-Mark Holding, CORE, 67.1%
Select Comfort, SCSS, 47.6%
Netflix, NFLX, 35.3%
LKQ, LKQ, 30.8%
Murphy USA, MUSA, 29.4%
Amazon.com, AMZN, 25.1%
Expedia, EXPE, 22.1%
Five Below, FIVE, 20.6%
ULTA Salon, Cosmetics & Fragrance, ULTA, 18.8%
Monro Muffler Brake, MNRO, 16.7%
Source: S&P Global Market Intelligence, USA TODAY, * based on estimates