Cheap gas, holiday sales could fuel retailer shares

Fri Jan 9, 2015 8:04pm EST
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By Ryan Vlastelica and Saqib Iqbal Ahmed

NEW YORK (Reuters) - Investors hope the lower gasoline cost is putting more money in consumers' wallets for spending on apparel and other retail goods. The next two weeks will indicate whether that's happening.

The coming weeks, as the fourth-quarter earnings season gets underway, are among the more active periods of the year for retailers to issue earnings preannouncements. The fourth quarter includes the crucial holiday shopping season.

An industry conference, the ICR Xchange in Orlando, Florida, which starts on Monday, is a particular area of focus.

Analysts expect companies presenting at the conference - which include Lululemon Athletica LULU.O, Big Lots (BIG.N: Quote) and Guess (GES.N: Quote) - to shine a light on holiday trends and discuss business expectations for 2015, and in some cases update their outlooks.

The early indications have been supportive, with a number of retailers reporting strong December sales this week. J.C. Penney Co (JCP.N: Quote), American Eagle Outfitters (AEO.N: Quote) and Aeropostale Inc ARO.N all had strong results, though Macy's (M.N: Quote) disappointed.

The flood of market commentary from next week's conference will likely provide more color on the sector’s prospects. Despite its solid sales, J.C. Penney announced store closures, while struggling apparel retailer Wet Seal Inc WTSL.O said this week that it laid off 3,700 workers, so clearly there are divergences in the fortunes of retailing companies.

"People are betting on volatility for sure. Money is moving in - they’re betting on moves," said Dennis Dick, head of markets structure at Bright Trading LLC in Las Vegas. "If you're chasing these, there's going to be a lot more risk."

The 30-day at-the-money implied volatility for the SPDR S&P retail exchange-traded fund XRT.P, a gauge of the risk of large moves in the ETF, is at 19 percent, or higher than 90 percent of readings in the last 52 weeks, according to data from options analytics firm Trade Alert.   Continued...

The fuel nozzle from a flex fuel pump is shown in this illustration photograph taken at a filling station in San Diego, California January 8, 2015.    
REUTERS/Mike Blake