By Sarah Morgan
FedEx’s strong earnings report this morning may be a good barometer for retailers this holiday shopping season – and the economy overall – but analysts say investors shouldn’t celebrate just yet.
The shipping company’s net income was up an impressive 76% from the same quarter a year ago, but for most investors, the more important number in the report was the 13% year-over-year increase in revenue for the FedEx (FDX) Ground segment. Early in the holiday shopping season, that’s the segment that ships gifts bought online, says Jim Corridore, a retail analyst for Standard & Poor’s Capital IQ (later on, procrastinators must rely on the Express segment). “Because of when they report earnings, they kind of give us an early peak,” of how strong retail sales will be, and this year the report looks good, Corridore says.
Of course, investors should be cautious in extrapolating from one company’s results to the health of the overall economy, or where the stock market may be headed. “Businesses aren’t really set up to provide their data as economic indicators,” says Robert Brusca, an economist with Fact & Opinion Economics. Their data isn’t seasonally adjusted the way government reports are, and company-specific factors can muddle the picture of bigger trends, Brusca says. But FedEx’s strong results do provide one more piece of evidence in “a steady stream of good and better-than-expected news,” he says.
That said, FedEx results have historically been well-correlated with overall retail sales, but they’re a particularly good guide for online sales, says R.J. Hottovy, a retail analyst with Morningstar. “We’re seeing a continued shift away from bricks and mortar retail this holiday season,” Hottovy says. That trend was also visible in the Census Bureau’s November retail sales report earlier this week, where sales at non-store retailers were up 13.9% over the previous year, a much stronger increase than the 6.7% overall gain.
Of course, not all retailers are thriving, and their boost in sales may be the result of deeper discounts , Hottovy says. For example, Best Buy (BBY) reported disappointing earnings earlier this week because even though sales rose, discounts ate into their profits. The natural winner in this kind of landscape is Amazon (AMZN), Hottovy says, but dollar stores should also do well this season; retailers that offer practical gifts that can be used year-round, like Williams-Sonoma (WSM), may also outperform, he adds.