3 Retail Stocks Rallying on Earnings Tailwinds

Amid a raft of positive earnings reports, retail stocks Kohl's Corporation (KSS), Nordstrom, Inc. (JWN), and Ralph Lauren Corp (RL) have caught fire

Nov 10, 2016 at 11:03 AM
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As the broader market continues to run higher on the U.S. presidential election results, retail stocks are rallying on earnings. Among the outperformers are Kohl's Corporation (NYSE:KSS), Nordstrom, Inc. (NYSE:JWN), and Ralph Lauren Corp (NYSE:RL). Below, we'll take a closer look at the pertinent earnings results, and how each stock's gains may be impacting options traders.

KSS has rocketed to a 13.7% gain at $51.98, with the retailer's adjusted per-share earnings of 80 cents topping the consensus estimate of 70 cents -- boosted by a strong back-to-school season. In fact, the stock earlier hit an annual high of $52.28.

This probably isn't sitting well with Kohl's Corporation options traders. The retail stock's 10-day put/call volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) checks in at a top-heavy 1.90, only 14 percentage points from an annual high. If the weaker bearish hands start to throw in the towel, KSS shares could catch a tailwind.

It's a similar story for JWN. While the department store chain didn't report earnings yet, its stock is up 8.5% at $56.75 on retail sector tailwinds. Of course, that doesn't mean the Street will have to wait long to get a look at Nordstrom's quarterly performance. The company will tell all after the close, and hopes to duplicate its post-earnings performance from August -- an 8% gap higher.

A repeat performance would crush option bears, of which there are many. Specifically, traders have bought to open 6.25 Nordstrom, Inc. puts for every call during the last two weeks -- a ratio ranking in the 96th annual percentile. Elsewhere, nearly 29% of the stock's float is sold short, which would take about 13 sessions to cover, at JWN's average daily volume. In other words, there is plenty of pent-up pessimism to potentially push the shares higher on a positive earnings surprise.

Rounding things out, RL has jumped 2.5% at $104.67 on earnings. The designer notched an adjusted per-share profit of $1.90 for the fiscal second quarter, easily outstripping the consensus estimate of $1.71. Despite today's pop on the charts, the stock still sits on a year-to-date deficit of more than 6%.

Unlike the options traders described above, Ralph Lauren Corp speculators have actually taken a more bullish path. The stock's 10-day ISE/CBOE/PHLX call/put volume ratio stands at 1.33, with long calls edging out puts. However, with nearly one-tenth of RL's float sold short, it may be that these call buyers are simply shorts hedging against a unforeseen rally -- like the one we're witnessing today.

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