February Retail Sales Bring Confirmation for These Two Holdings
Here's what we learned from the the latest sales numbers as well as how it impacts our recent change of heart on a portfolio position.
You're reading 0 of 1 free page.
Register to read more or Unlock Pro — 50% Off Ends Soon
Leading into Monday morning’s February Retail Sales report, we’ve received multiple indications consumers were taking a more cautious stance with their spending. Those included recent consumer inflation expectations and tepid, if not outright weaker-than-expected guidance from a growing cast of retailers. The latest indication that all is not well in retail land were reports Hudson Bay, one of Canada’s largest retailers, is starting to liquidate its entire business, and Forever 21 has filed for bankruptcy for a second time.
With the stage set, we can say that the February Retail Sales report brings support for our positions in Amazon AMZN and Costco COST, and also shows consumers are shifting to eating at home from dining out. We observe this by examining the line-item data that show nonstore retail sales rose 2.4% sequentially in February compared to 0.5% for overall retail and the 0.2% retail and food services headline print. Looking at the trailing three-month data show that on a year-over-year basis, digital shopping increased 6.5%, well ahead of the 5.5% trailing three-month figure. We saw the same with grocery, which was up 4.3% year over year in February, a quicker pace than the trailing three-month figure of 3.8%.
While dining out was a strong spending category last year, food service and drinking place retail sales fell 1.5% compared to January. Even comparing the year-over-year February figure of 1.5% against the trailing three-month number of 2.7% we see consumers are spending less on dining. Similar comparisons show softer spending on clothing, sporting goods, department store spending, building materials, furniture, and autos.
While good for our COST and AMZN holdings, the report also reaffirms our thinking we will want to unwind the portfolio’s exposure to Mastercard MA when we see the next leg up in the market. With that in mind, the resistance levels we are eyeing on MA are the 50-day moving average near $544 and the 20-day moving average near $553.
For folks whose AMZN and COST position sizes are smaller than those in the portfolio, current share price levels offer nice pick-up points for both stocks.
At the time of publication, TheStreet Pro Portfolio was long AMZN, COST and MA.
