Takeaways From This Week's Surprising Retail Earnings

U.S. retail stocks, including Macy’s Inc M, Best Buy Co Inc BBY and TJX Companies Inc TJX, are trading higher this week after reporting earnings beats in the critical holiday quarter.

Ryan Craver, retail expert and founder of Commerce Capital, was a guest on Benzinga’s PreMarket Prep Thursday, and he was a bit surprised at the market reactions.

Best Buy And TJX

Best Buy shares traded higher by 16 percent on Wednesday.

“The only strong thing I could find in that report was that their margin was flat year-over-year,” Craver said. “Their online [sales growth] was below 10 percent, and their Q1 guidance is 0 to 1 percent comp. Not too exciting on the Best Buy front.”

When it comes to TJ Maxx, Craver said he was “shocked” at how good TJX’s numbers were.

“I think that this +6 [percent] in terms of comps for Q4 is pretty amazing. If you look at their margin, it was down a full percent year-over-year, so they obviously bought the quarter once they found out that December was going to be weak, but I think it’s actually a very good number for TJX,” Craver said.

The market wasn’t nearly as impressed, sending TJX stock just 2.4 percent in early Wednesday trading.

Macy’s Needs To Do More

Macy’s stock also traded higher this week despite reporting just 0.7 percent same-store sales growth in the fourth quarter, missing consensus estimates of 0.9 percent.

“I’ve never been a fan [of Macy’s]. I still believe they’ve got a lot of grooming to do, some closure of stores. I think that they came out with some cost cuts, some layoffs of VPs and stuff. I just think given where their price is today, given where the overall sentiment is on the name, they’ve got to be a bit more drastic,” Craver said.

He said it’s unlikely closing stores, cutting costs and selling off assets is going to generate meaningful upside for the stock, and Macy’s may need to get aggressive with a potential acquisition to potentially turn the tide.

Off-Price Retailers Dominating

Looking ahead for retail investors, Craver said the chart above of recent same-store sales growth is a clear indication that off-price retailers have been responsible for the majority of retail comps growth in recent years. He said the biggest question mark looking forward is whether or not the off-price leadership will continue. He also said the upcoming earnings report from Costco Wholesale Corporation COST will be an important indicator for warehouse retailers.

“If Costco comes out with some blowout numbers, I still think the warehouse play is a fantastic play versus the mass retailers,” Craver said. Costco’s mass retail competitors include Walmart Inc WMT and Target Corporation TGT.

PreMarket Prep is a daily trading show hosted by prop trader Dennis Dick and former floor trader Joel Elconin. You can watch PreMarket Prep live every day from 8-9 a.m. ET here. The replay can be found on Benzinga's YouTube channel, and the podcast is on iTunes, Google Play, Soundcloud, Stitcher and Tunein.

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