Investors try to gauge if retail's stay-at-home trends will stick as Covid vaccine is in sight

November 24, 2020

Investors have closely watched retailers who sell home improvement supplies, exercise equipment and technology for remote learning benefit from stay-at-home trends during the coronavirus pandemic. Now, they're weighing whether sales momentum will fade as soon as Americans get the Covid-19 vaccine.

Big-box retailers from Target to Best Buy's third-quarter earnings have surged past Wall Street's expectations in the past two weeks. Best Buy's online revenue in the U.S. jumped by 174% year over year. Dick's Sporting Goods had record quarterly same-store sales growth of more than 23%. And Home Depot's average customer purchase rose to $72.98 — 10% higher than the same time last year.

Instead of cheering, however, some investors are asking tough questions and selling stock. Best Buy's shares were down nearly 6% and Dick's shares fell more than 2% Tuesday, despite their strong third-quarter performance.

Some have also made bets on companies hard-hit by the pandemic, expecting a return to more typical spending habits, from going to the movies to buying new clothes. Movie theater chain AMC Entertainment was up more than 14% Tuesday. Macy's and Gap shares have also risen in recent days.

Many of the strong performing retailers, such as Target and Best Buy declined to provide a forecast for the fourth quarter and holiday season, citing uncertainty because of the pandemic. Best Buy warned it's juggling higher shipping costs and inventory challenges during the holiday season.

Best Buy CEO Corie Barry, however, said she's confident that the global health crisis will have a lasting effect on the way Americans live, shop and spend their money. That will lift the company's long-term performance, too, she said.

She said consumers have gotten more used to using technology to monitor their health, track their workout or regulate the thermostat at home. She said there's still plenty of runway, though. She pointed to smart home device penetration, which is only 33%.

"There is still this amazing amount of opportunity for people to use technology to make their life better," she said. "And I don't see that just going away at the end of the pandemic."

Dick's, for its part, said Americans have picked up hobbies that they will continue, such as learning how to golf and spending more time outdoors.

And Home Depot and Lowe's said the booming real estate market and a new DIY habit — along with purchases to fix wear-and-tear in aging homes — will be a growth driver in years to come.

Companies also spoke of their plans to break into new categories, make online sales more profitable or grab more market share.

Target recently struck a deal with Ulta Beauty to open smaller version of the makeup, fragrance and skincare shops in hundreds of its big-box stores. Best Buy said it's remodeled four stores in the Minneapolis to test different ways to fulfill online orders, such as putting a store warehouse next to a covered drive-up lane where customers can do curbside pickup.

On a conference call with investors, Barry noted that it's unusual for Best Buy to switch around stores during the the holidays — an especially busy season for purchases of videogame consoles and other gifts. But she said the company decided to do it because "we feel it's imperative to move quickly."

—CNBC's Lauren Thomas contributed to this report.

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