Wells Fargo says that fundamental trends in the retail sector may see a decline even as accelerations are seen in the fourth quarter due to holiday sales. Ike Boruchow, a senior analyst, has stated in a note to his clients saying that the majority companies seem to be on the upward curve on their ability fast-track solid growth in the last quarter of the year. However, he believes that the holiday sales this year is bearish.
In the second quarter of the year, a large portion of the retailers had increased their second half guidance, emphasizing on the sales strength in the last quarter. Boruchow has said that 15 of 18 companies covered by him which include L Brands and Signet Jewellers, plan to accelerate their growth, but due to the shorter calendar, and warmer weather, coupled with tourism trends could act as a hurdle to these plans and weigh heavy on the retailers’ business.
He also stated that in the coming time, a risk may arise. A downward holiday calendar and the tourism issue could negatively affect the accelerated trends in another three months, and the building inventory. In his opinion, the six days too few between Thanksgiving and Christmas in 2019 could cause negative balances in domestic oriented retail sector.
Weather forecasts predict warmer winters this year, which leads to the presumption of bad sales for retailers of weather-sensitive clothing and products like Canada Goose. The result of the US-China trade war has also shown that the dollar is higher than other currencies currently, and this means lesser tourism in the US and lesser spending by tourists.
Even though sales growth topped the inventory growth in 2018 and 2017, the trend can see a reverse curve this year because of the tariff damage with China.