Groceries and Fashion Retailers Picked Up the Slack of the Stocks' Relay Race

Groceries and Fashion Retailers Picked Up the Slack of the Stocks' Relay Race

Sergey Lysakov  | Sep 16, 2020 14:10

After a large-scale technical correction earlier this month, the good old, or "chronic" demand for Big Tech stocks has not recovered so far. Amazon (NASDAQ:AMZN) shares are flashing somewhere near the $3150 road, and Google (NASDAQ:GOOGL) is also experiencing a similar story just above $1500 and Facebook (NASDAQ:FB) is ranging in between $265 and $280 per share. Apple (NASDAQ:AAPL) stocks only moved slightly after yesterday's presentation of new products in Cupertino, including a redesigned iPad Air, the Apple Watch Series 6 plus a bundle of services such as Apple Music, but without the 5G-based iPhone 12, as the global situation postponed its production for several weeks with no particular date set yet to launch it.

However, delayed sales and deferred profits will later materialise into the same or even bigger earnings, it's probably just a matter of time. As long as tech giant stocks are dormant, the retail sector may be seen to steal the thunder. The main contribution to the rise of the European composite indices today was made by the two largest fast-fashion names on the continent, the Spanish Zara owner Inditex (MC:ITX) and its Swedish rival H&M. The reports showed, both companies became profitable again after a rather turbulent two fashion seasons mostly destroyed by the coronavirus influence with all these terrible lockdowns first and a relative consumers' inactivity during the viral banditry "after party".

Inditex stocks, also known by it flagship Zara, jumped up by more than 6.5% this morning, from the $24 area to $26 at the highest point, and the possible price target for the mid-term may be located above $30 or even $32 per share, where its stocks were in February. The company made it clear that it returned to its quarterly profit levels of 214 million Euros. These profits were made during the three month period before their shopping network experienced its first losses since its creation. Now Zara's presentation specifically mentioned its online performance on a "single inventory platform" as most of the consumers stayed away from shopping districts. The figures say that unsold volumes took a fall of 19% from a year earlier. Pablo Isla, the main Inditex frontman and owner, said on Wednesday that he’s "confident Inditex has turned a corner", as the second quarter marks the turning point for the sales recovery. The president of Inditex believes that the foundations have been laid for a return to commercial "normality". Between August 1 and September 6, Inditex had recovered 89% of its sales, which was obtained in the same period of the previous year, and were at the level of those it had in 2018, as Isla said during a conference call.

H&M had beaten average quarterly forecasts already a day before, and now Inditex gave one more signal in favour of the proper rebound for the retail sector. H&M stock prices jumped up by 10.6% on Tuesday and then rose by another 3.1% on Wednesday to the high levels since May, but it's still 12.5% lower than the pre-crisis peak price. H&M’s warehouse inventories will not exactly be defined until the firm releases the full report in another couple of weeks. But the company already managed to outperform even its own previous forecasts, with a pre-tax profit of some 2 billion Swedish Kronas in Q2 2020, which is approximately 192 million Euros, citing a “higher-than-expected full-price sales”. In previous months, both companies commented on their very strict cost control because of the "drastic and sudden" stop of orders in many emerging markets earlier in the year. In addition, H&M even used the lockdown situation to prompt a necessary optimisation plan to close some stores as these shops were opened in a rush of excessive and risky expansion over recent years.

Some other retail fashion stocks have already gained following Zara and H&M's example, with Next, boohoo.com and Zalando up by more than 5% over the last two days. If the current rise in newly detected Covid-19 cases could be localised and controlled, then the next season for the fashion industry could bring an even bright messenger pigeon to tell us about much better times for the habitual life worldwide.

This sign is particularly noteworthy in the background of recent spikes in stock prices of grocery networks across the pond, meaning Walmart (NYSE:WMT) or Target (NYSE:TGT) shares, and even Macy's (NYSE:M) in some episodes. Walmart, the world’s biggest retailer, is soaring high especially due to its great free express delivery service program. So, Walmart shares topped $150 in September after a great earning report, that's after $120 only in mid-summer, compared with a fall below $105 on the bottom in March.

There is a feeling that the listed companies, as well as giant food retailers like McDonalds, or beverage suppliers like Coca-Cola (NYSE:KO) and Starbucks (NASDAQ:SBUX), or other retailers with a relatively low average purchase size for the consumers, have been growing in price sharply over the past few weeks, as they are attracting some attention from the temporarily break in high-tech shares. However, this trend may well continue for a longer period if some capital owners could prefer to minimize or hedge their risks of holding too big lots of too expensive and "too profitable" shares. If so, it might serve as a good turn at least for a further climbing of the U.S. S&P broad market index and for the similar movements in the Pan-Euro Stoxx 600 - if not just in September, than before the end of the year.

Sergey Lysakov

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