3 Retailers to Watch Ahead of Earnings

Dollar General Corp. (NYSE:DG), Express, Inc. (NYSE:EXPR), and Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA) are slated to report earnings tomorrow

Karee Venema
Nov 30, 2016 at 2:55 PM
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Retail stocks have been in the limelight recently, as the holiday shopping season gets underway -- calling into focus these seven key technical levels on the SPDR S&P Retail ETF (XRT). Additionally, a number of notable names have been in the earnings spotlight of late, with shares of American Eagle Outfitters (NYSE:AEO) most recently making a big move in the wake of the retailer's quarterly results. The action is far from over, too, with retail firms Dollar General Corp. (NYSE:DG), Express, Inc. (NYSE:EXPR), and Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA) all slated to step into the earnings confessional tomorrow. Here's a quick look at how pre-earnings options traders are lining up on DG, EXPR, and ULTA.

DG will unveil its quarterly results before the opening bell tomorrow, and ahead of the big event, the shares are down 0.9% at $77.62. And while the stock is up 17% from its early October lows near $66.50, this rebound recently stalled out near the round $80 mark -- a level that served as support for DG several times this year. In the past 10 trading sessions, the stock's weekly 12/2 79- and 83-strike calls have seen two of the biggest rises in open interest. Drilling down, it looks like the majority of the action is a result of one trader initiating a long call spread, betting on DG to rally right up to $83 by expiration at this Friday's close. Looking back over the past eight quarters, shares of Dollar General Corp. have averaged a single-session post-earnings move of 6.1%, less than the 10.5% the options market is pricing in this time around.

Puts are trading at 62 times what's typically seen at this point in the day in EXPR's options pits, with 20,000 contracts on the tape compared to roughly 3,600 calls. According to Trade-Alert, the bulk of the action is a result of sell-to-open activity at the stock's December 11 put, with speculators betting on support to hold at $11 through front-month options expiration at the close on Friday, Dec. 16. Put sellers could also be hoping for a post-earnings volatility crush, considering EXPR's 30-day at-the-money implied volatility of 67.6% is docked just 1 percentage point from a 52-week peak -- indicating lofty volatility expectations are priced into the equity's near-term options. Shares of Express, Inc. have swung an average of 10% in the session subsequent to reporting over the past eight quarters, with the options market expecting a loftier single-session move of 14.5% after the company reports tomorrow morning. At last check, the retail stock was up 0.7% at $13.57, paring its year-to-date deficit to 21.5%.

ULTA is down 0.6% at $258.79, even after Jim Cramer said he likes the retail stock "for a long-term story." And while the shares have been running into recent resistance near $265 -- 20% above their late-April highs -- they remain almost 40% higher on the year. Pre-earnings call buyers have been busy in recent weeks, per ULTA's 10-day call/put volume ratio of 1.54 at the International Securities Options Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which ranks in the elevated 79th annual percentile. Diving deeper, the equity's front-month December 270 call has seen the largest rise in open interest over this time frame, with 3,117 contracts added. Historically speaking, the security averaged a single-session post-earnings move of 6.9% over the last eight quarters, with the options market pricing in a 10.6% swing this time. Ulta Salon, Cosmetics & Fragrance, Inc. is slated to report its quarterly earnings after tomorrow's close.

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