2 Retail Stocks Getting Rocked Post-Earnings

After reporting earnings, Lowe's Companies, Inc. (NYSE:LOW) and American Eagle Outfitters (NYSE:AEO) are both down sharply

by Alex Eppstein

Published on Aug 17, 2016 at 10:23 AM

While some retail stocks are taking off on earnings today, not every retailer has been so lucky. In particular, Lowe's Companies, Inc. (NYSE:LOW) and American Eagle Outfitters (NYSE:AEO) are both tanking post-earnings. Let's take a closer look at these retail stocks, which have both been met with pessimism in the options pits.

At last check, LOW was down 6.1% at $76.51, as an earnings miss and downbeat guidance have wiped out most of the retail stock's year-to-date gains. In fact, the shares are on track to close below their 100-day moving average for the first time since March. Historically speaking, today's post-earnings swing is slightly sharper than usual.

This might not trouble short-term options traders, who have been very put-slanted toward LOW. The stock's Schaeffer's put/call open interest ratio (SOIR) of 1.19 outranks 94% of all other readings from the past year. On the other hand, analysts may be forced to rethink things. Eleven of 16 brokerages rate Lowe's Companies, Inc. a "buy" or better, with not a single "sell" opinion to be found. In other words, the stock is vulnerable to downgrades.

Fellow retailer AEO has sunk 5.1% at $18. This is a dramatic reversal for the shares, which touched a three-year high of $19.55 on Monday, and have been on fire since breaking out of their June consolidation pattern around $15. In fact, the stock has breached its previously supportive 20-day moving average for the first time since late June.

This, despite AEO posting better-than-expected earnings, revenue, and same-store sales. Trying to make sense of the sell-off after the company's "good report," Nomura suggested "sentiment and setup is playing a larger role than actual fundamentals." Separately, AEO said it will shutter up to 40 underperforming stores this year.

Fortunately, it looks like shareholders protected themselves ahead of earnings. American Eagle Outfitters sports a 10-day put/call volume ratio of 2.80 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), in the 87th annual percentile. But given the stock's sharp gains, it's likely a number of these put buyers were shareholders hedging against an unexpected plunge, rather than bearish speculators hoping for one.

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