This week has presented some important earnings results that reflect not only aggregate demand for consumer discretionary goods (VCR, XLY), but also the shift in consumer behavior away from stores and towards e-commerce. This transition will yield clear winners (AMZN, GOOG, EBAY). Other secondary winners (V, MA, AXP, UPS, FDX) will also play an important part, even if they’re in very different verticals. This means investors need to look at a lot of signals coming from different places to determine how to profit on the shift (or lack of shift) from brick-and-mortar retailers to online sites.
This week, we saw some mixed signals that are bad for some names and good for others, but a clear sign of a shift towards e-commerce. UPS fell on Friday with disappointing earnings and a low forward-look, but these were a result of greater business. The glut of demand for shipping around the holiday season caught UPS off-guard, causing them to spend more to try to fulfill promises to customers.
Another good sign for e-commerce was the report from American Express (AXP), which showed consumers upped their use of cards by 8%. This contrasts with Capital One (COF), which fell on disappointing numbers. Visa (V) and Mastercard (MA) are both in the green on the backs of AXP’s numbers, as investors predict more of the same when they report later in the quarter.
One of the biggest jolts of the week was Best Buy’s fall (BBY), which reported lower revenues from the holiday season, with negative year-over-year comparable store sales and lower total revenues. On top of the low revenues, expectations for earnings will remain low, because BBY tried an aggressive price-match policy for the season that was supposed to combat so-called showrooming. The strategy was a large cause for the stock’s run-up in the second half of 2013, but this week’s results demonstrates just how wrong the market was in believing BBY could combat the growth of e-commerce.
Investors remain uncertain whether the poor numbers reflect declining aggregate demand or a shift to e-commerce, which still represents a small fraction of total retail sales in the U.S. As a result, the news from the brick-and-mortar and infrastructure companies above haven’t moved AMZN, GOOG, and EBAY yet. But these companies are reporting soon and their revenues will be a substantial indicator of just how important ecommerce is becoming to the American economy, and those revenues could influence not only these companies’ stock prices, but the prices of XLY and VCR as well as the broader U.S. equities market.