Nike earnings beat doesn't mean rebound for unloved apparel stocks, traders say
VIDEO5:5505:55Traders on whether Nike's earnings slam dunk could forecast a retail reboundTrading NationOne earnings beat does not a windfall make.
Nike's blowout earnings report doesn't necessarily change the outlook for other apparel retailers, particularly not the ones whose stocks are farthest away from their 52-week highs, two traders said Wednesday.
Those struggling names include:
- Under Armour, off its 52-week high by 48%
- Tapestry, off by 45%
- Ralph Lauren, off by 44%
- PVH Corp., off by 42.5%
- VF Corp., off by 31%
- Ross Stores, off by 29%
- TJX Companies, off by 19%
None of them stack up to Nike, which saw an 82% spike in online sales in its latest quarter, said Danielle Shay, director of options at Simpler Trading.
"The only thing that I can really compare it to is Lululemon," Shay told CNBC's "Trading Nation" on Wednesday.
"You have clientele that absolutely love the brand, you also have the fact that this type of wear is something that people are going to be wearing a lot more often when they're working from home and their e-commerce is doing amazing," she said.
The rest of the group is facing serious obstacles — discount retailers such as Ross Stores and T.J. Maxx parent TJX Cos. will struggle to re-create their treasure-hunt shopping experiences online, while luxury brands could see sales slide as consumers opt to stay home and offices remain closed, Shay said.
"Nike's the shining star, but every single one of the rest of them? I would just sell them," she said.
She added that traders might want to consider buying put options in TJX Cos. and Ross Stores as a way of shorting them should their stocks break below their 50-session moving averages.
John Petrides, a portfolio manager in the wealth management division of Tocqueville Asset Management, was avoiding the space altogether.
"I don't like retail as a category in general because fashion comes in and out," he said in the same "Trading Nation" interview. He agreed that few retailers besides Nike and Lululemon have staying power.
"You have strong brand power, you definitely have a secular trend of being at home and not going into the office and you have an easily transferrable product on the e-commerce platform. Nike ticks a lot of boxes," he said. "It's not a surprise the stock is reacting as it is."
Nike shares climbed nearly 9% on Wednesday but opened Thursday's session 1.5% lower. Shares are up over 25% year to date.
As for the near-term outlook for other apparel plays, Petrides was most worried about bigger-box retailers such as Kohl's.
"They're going to have a tough time in the coming times, particularly if the Covid situation lasts longer than what the market is expecting," he said.
The SPDR S&P Retail ETF (XRT) fell nearly 3% on Wednesday. It is up just 7% for the year.
Disclosure: Shay owns shares of Nike.