Below we present the list of 5 Retailers Hedge Funds Are Bailing On As Inflation Soars. For our methodology and a more comprehensive list please see 10 Retailers Hedge Funds Are Bailing On As Inflation Soars.
5. American Eagle Outfitters Inc. (NYSE:AEO)
Number of Hedge Fund Shareholders: 27
American Eagle Outfitters Inc. (NYSE:AEO) suffered a steep drop in hedge fund ownership during Q3 of last year, before rebounding slightly in Q4. Nonetheless, the company has lost 40% of its hedge fund shareholders over the past four quarters. Kerr Neilsen’s Platinum Asset Management and Thomas Bailard’s Bailard Inc were among the many funds selling out of AEO in the last year.
American Eagle Outfitters Inc. (NYSE:AEO) had a strong 2021, but perhaps got caught in thinking the good times would persist well into 2022 despite the clear signs of a pending economic slump. The company achieved record sales last year, but also ended the year with record inventory levels, which jumped 23% in Q1 as sales growth slows back to single-digits. The company is likely to face margin pressure now as it seeks to unload its excess goods.
Cowen analyst Jonna Kim slashed the firm’s price target on American Eagle Outfitters Inc. (NYSE:AEO) to $13 from $25 after taking over coverage of the stock, while also downgrading it to ‘Market Perform’ from ‘Outperform’. Kim cites an understandably worrying mix of pressures facing the company, including sluggish demand, higher costs, and markdown pressure.
4. AutoZone, Inc. (NYSE:AZO)
Number of Hedge Fund Shareholders: 38
There were 33% fewer hedge fund shareholders of AutoZone, Inc. (NYSE:AZO) on March 31 than there were in the middle of 2020, which included a 17% drop during Q1 of this year. Billionaires Ken Fisher of Fisher Asset Management and Paul Tudor Jones of Tudor Investment Corp sold off AZO during the latest reported quarter.
AutoZone, Inc. (NYSE:AZO) is one of the few retailers that could outperform during a recession, having done so in 2008/2009. Rather than take their cars in for expensive repairs during lean economic periods, car owners increasingly opt to undertake car maintenance tasks themselves, which is where AutoZone’s bevy of free services and tool rentals come in handy. And AutoZone clearly isn’t wilting under the pressure of a potential recession, as the company plans to open more distribution hubs in Q3 which will pave the way for another 200 store openings.
Altron Capital Management likes AutoZone, Inc. (NYSE:AZO)’s potential in a country of aging automobiles, as detailed in its Q4 2021 investor letter:
“AutoZone has been a winner since we built a position in the company last quarter. Given the current supply challenges in the automotive sector, we believe the long-standing trend of America’s aging automotive fleet will continue for the foreseeable future with AutoZone as a primary beneficiary.”
3. Tapestry, Inc. (NYSE:TPR)
Number of Hedge Fund Shareholders: 39
Tapestry, Inc. (NYSE:TPR) shares are held by 26% fewer hedge funds as of March 31 compared to a year earlier, when the stock peaked at an all-time high in ownership. Since then, the company has lost numerous powerhouse money managers as investors, including Steve Cohen of Point72 Asset Management and Louis Bacon of Moore Global Investments.
Luxury retailer Tapestry, Inc. (NYSE:TPR), which owns the Kate Spade, Stuart Weitzman, and Coach brands, has been hit hard by the Chinese lockdowns. China is one of the biggest markets for luxury goods, and Coach has a large retail presence in the country, where lockdowns have shuttered or hindered operations at 40% of its stores. The company is nonetheless guiding for a record $6.7 billion in revenue this year, which could have further upside should China meaningfully reopen.
The Ariel International & Ariel Global Fund have been impressed with Tapestry, Inc. (NYSE:TPR)’s growing online sales and improving margins, as laid out in the fund’s Q3 2021 investor letter:
“Luxury accessory and lifestyle brand, Tapestry, Inc. was the top contributor to performance over the trailing one-year period. Revenue improvement across all three brands with a notable increase in consumer demand, particularly for the Coach business, triple-digit growth in e-commerce, and better than expected pricing, drove margins higher. Looking ahead, we expect Tapestry’s supply chain and SKU rationalization initiatives to continue to deliver margin expansion. Together, with early signs of improved receptivity for the Kate Spade brand, we believe a significant value creation opportunity lies ahead.”
2. The TJX Companies, Inc. (NYSE:TJX)
Number of Hedge Fund Shareholders: 56
Hedge fund ownership of The TJX Companies, Inc. (NYSE:TJX) peaked in Q3 2020 after rising steadily for several years. It’s cratered by 29% since then however, falling over five of the last six quarters. James Dinan’s York Capital Management and Chris James’ Engine No. 1 LLC are some of the funds that sold off their TJX positions over the past few quarters.
The TJX Companies, Inc. (NYSE:TJX) is in somewhat of a better position than other retailers given the unique way in which it sources discounted products, which allows it to avoid some of the supply chain woes ailing other retailers. TJX has grown EPS by an average of about 10% over the last ten years, and that trend appears to be intact thanks to the company resuming its share repurchase program after briefly hoarding cash at the outset of the pandemic.
The ClearBridge Investments Large Cap Value Strategy liked the potential post-pandemic customer surge to The TJX Companies, Inc. (NYSE:TJX), as revealed in the fund’s Q4 2021 investor letter:
“The pandemic created opportunities for us to be more aggressive in a variety of areas of the market. We were opportunistic throughout the year, for example, in positioning the portfolio to benefit from a flush consumer eager to return to spending and traveling. New positions included TJX, an off-brand retailer with a large presence in the U.S. and Europe that should continue to benefit from the contraction of many traditional retailers, particularly as consumer spending resumes.”
1. Walmart Inc. (NYSE:WMT)
Number of Hedge Fund Shareholders: 60
Topping the list is Walmart Inc. (NYSE:WMT), which remains the most popular retailer on this list among hedge funds, but which has nonetheless seen an 18% drop in ownership over the past two quarters. Zach Schreiber’s Point State Capital and Steve Cohen’s Point72 Asset Management are some of the notable money managers that are no longer shareholders of WMT.
Walmart Inc. (NYSE:WMT) shares have fallen by 15% since the middle of May due to the company’s underwhelming fiscal Q1 earnings, which was followed by a guidance cut at the end of July. Walmart’s fiscal 2023 sales growth is now expected to come in at just 4.5%, which doesn’t even factor in the effects of inflation.
After rebounding to $25.9 billion in operating income for its fiscal 2022, Walmart Inc. (NYSE:WMT) is now expecting a 12% decline on that front during the current fiscal year, which would barely top its results from the pandemic affected fiscal 2021. Cost pressures are also projected to drive Walmart’s operating margin down even further, to less than 4% this fiscal year, which would represent a nearly 33% decline over the past five years.
For more of the latest stock picks worth considering for your portfolio, check out These 10 Stocks are Gaining After Announcing Share Buybacks and 10 Stocks to Buy According to Francis Chou’s Chou Associates Management.
Disclosure: None.
