Earnings Preview: Kohl's Corporation, Nordstrom, Inc., and J C Penney Company Inc

Analyzing pre-earnings option trends on Kohl's Corporation (NYSE:KSS), Nordstrom, Inc. (NYSE:JWN), and J C Penney Company Inc (NYSE:JCP)

Aug 12, 2015 at 1:56 PM
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The retail sector is in focus this week, with retail sales figures for July due out bright and early tomorrow morning -- and a number of notable names taking their spot in the earnings confessional. While Wall Street has already taken a (disappointing) look at results from Macy's, Inc. (NYSE:M) -- and been given a dismal sneak peak at numbers from Gap Inc (NYSE:GPS) -- reports from Kohl's Corporation (NYSE:KSS), Nordstrom, Inc. (NYSE:JWN), and J C Penney Company Inc (NYSE:JCP) are on deck. Below, we'll take the pre-earnings temperature of KSS, JWN, and JCP.

  • KSS is slated to report earnings tomorrow morning, and based on the stock's near-term at-the-money (ATM) straddle, the options market is expecting a post-earnings move of 6.6%. This is slightly more than the 5% swing KSS has averaged in the session subsequent to reporting over the past eight quarters. If option traders have their way, this action will resolve to the upside. The stock's 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio of 2.17 sits in the 84th annual percentile. Premium on the security's short-term options is pricing in extremely high volatility expectations ahead of the scheduled event, considering KSS' Schaeffer's Volatility Index (SVI) of 44% rests just 6 percentage points from a 52-week peak. Technically speaking, shares of Kohl's Corporation are down 22.5% from their April 6 all-time peak of $79.60, but appear to have found a foothold atop the round-number $60 mark -- home to peak put open interest in the front-month series. Today, the stock is bucking the broad-market trend lower, up 0.5% at $61.73.

  • JWN will take its turn on stage after tomorrow's close, and option traders have been upping the bearish ante in the weeks leading up to the results. At the ISE, CBOE, and PHLX, for example, the equity's 10-day put/call volume ratio has jumped to 1.53 from 0.65 over the past two weeks, and now ranks in the 79th percentile of its annual range. Simply stated, puts have been bought to open over calls at a faster-than-usual clip. Historically speaking, JWN has averaged a single-session post-earnings move of 4.3% throughout the past eight quarters -- slightly less than the 4.8% swing the equity's near-term ATM straddle is pricing in this time around. On the charts, Nordstrom, Inc. has been consolidating near its 320-day moving average since topping out at a record high of $83.16 in late March -- last seen lingering near $75.02.

  • JCP has spent most of the past five months bouncing between $8 and $9.50, with the shares last seen trading near $8.14, after taking a sharp bounce off their 200-day moving average earlier. In the options pits, speculators have been initiating long puts over calls at the quickest clip of the year, as evidenced by JCP's 10-day ISE/CBOE/PHLX put/call volume ratio of 2.32, which is docked in the highest percentile of its annual range. This skepticism is seen elsewhere on the Street, as well, with more than one-third of J C Penney Company Inc's float sold short. Looking back over the past eight quarters, JCP has averaged a post-earnings swing of 10.2% the day after reporting -- in line with what the stock's near-term ATM straddle is forecasting for this time around. JCP is scheduled to report earnings on Friday morning.

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