Overblown Holiday Worries? 3 Stocks Set for a Surprise Comeback

Key Points

• Third-quarter 2024 earnings miss from retailers have already nicked expectations for strong holiday sales. 
• Lowered guidance has set the bar low for the "have not" retailers, causing shares to sink on tax-loss selling.
• With the bar set so low, investors shouldn’t rule out the potential for upside surprises.

The holiday shopping season is the time of the year for retailers in the consumer discretionary sector to get in the black. While some retailers like RH NYSE: RH and Williams-Sonoma Inc. NYSE: WSM are the “haves” and are expected to have a strong holiday season, many retailers are the “have nots” and already presumed to have weak results. This has already led to investors dumping shares for tax harvesting purposes, but the bar may have been set too low. Here are three stocks expected to have weak holiday sales but could surprise the upside. 

Kohl’s: Entering The Holidays With Low Expectations as New CEO Starts in 2025  

Discount department store operation Kohl’s Co. NYSE: KSS admittedly had a horrible third quarter of 2024. Outgoing CEO Tom Kingsley didn't hide around the bush, stating they weren't satisfied with its Q3 results and that they must "execute at a higher level." The company reported a Q3 consensus analyst estimate miss of 8 cents, coming in at 20 cents. Revenue fell 8.5% YoY to $3.71 billion versus $3.63 billion consensus estimates. Operating income collapsed to $98 million, down from $157 million in the year-ago period. The only bright spots were the 20 bps margin improvement to 39.1% and 3% inventory reduction.

Downside Guidance Sets Expectations Low for Full Year 2024

Kohl's issued downside guidance for the full year 2025, with EPS expected between $1.20 and $1.50, well below the $1.80 consensus estimates. Revenues are expected to fall 7% to 8%, or $15.26 billion to $1.54 billion, versus the $15.68 billion consensus estimates. Comparable sales are projected to fall 6% to 7%.

Was Q3 a Kitchen Sink Quarter for the New Incoming CEO?

Many investors believe the downright nasty quarter may have been a “kitchen sink quarter” to set the bar low for its new incoming CEO, Ashley Buchanan. Buchanan was the CEO of arts and crafts retailer Michaels Companies after his 13-year tenure at Walmart Inc. NYSE: WMT. Buchanan will be the third CEO in three years to try their luck at a turnaround when he takes the helm on Jan. 15, 2025.

Best Buy: AI-Driven Consumer Electronics Upgrade Cycle May Not Happen

The artificial intelligence (AI) boom was supposed to drive big-box electronics retailer Best Buy Co. NYSE: BBY results higher heading into the holiday season. AI was believed to spark a new laptop upgrade cycle and a resurgence in the consumer electronics upgrade cycle with a robust second half of 2024.

The Grinch Came Early in October to Spoil the Holidays

Unfortunately, expectations were dashed on the release of its third-quarter 2024 earnings report. Best Buy reported Q3 EPS of $1.26 for the quarter ending on Nov. 2, 2024, missing consensus estimates by 4 cents. Revenues also slid 3.2% YoY to $9.45 billion, falling way short of the $9.63 billion consensus estimates.

Downside Guidance Sets Expectations Low for Full Year 2024

Best Buy issued downside guidance for full-year 2025 EPS of $6.10 to $6.25 versus $6.26 consensus estimates. Full-year 2024 revenue is expected between $41.1 billion and $41.5 billion versus $41.54 billion. Full-year comparable sales are expected to fall 3.5% to 2.5% YoY, which is worse than previous estimates for a drop of 3% to 1.5% YoY.

Blame It on Weak Consumers and Election Distraction

Management blamed a challenging macroeconomic environment coupled with election distractions as the culprit for sluggish sales. Best Buy is planning on adding more sales events and discounts to cut down inventory with a focus on bolstering membership sales for margin expansion.

Best Buy CEO Corie Barry remains optimistic, stating, “We are excited and feel well-positioned for the holiday season with compelling deals, inspirational in-store and digital merchandising and competitive fulfillment options.” 

Barry concluded, “We continue to see a consumer who is seeking value and sales events, and one who is also willing to spend on high price-point products when they need to or when there is new, compelling technology. Thus, we are balancing our optimism in both the industry and our unique positioning with a pragmatic approach to likely uneven customer behavior going forward.”

Foot Locker: Fills Footwear Gap With Hoka and On Running Brands

Footwear and apparel retailer Foot Locker Inc. NYSE: FL had a love-hate relationship with Nike Inc. NYSE: NKE as the company seemed to abandon its wholesale strategy to bolster its direct-to-consumer (DTC) strategy only to reverse course. Foot Locker filled the gap with other footwear brands like Hoka from Deckers Outdoor Co. NYSE: DECK and On from On Holding AG NYSE: ONON. With Nike back as a supporter, Foot Locker is emphasizing its latest models to stir up demand. However, it may be too late this time of year.

Q3 Results Miss But Comparable Sales and Inventory Were Bright Spots 

Foot Locker reported Q3 2024 EPS of 33 cents, missing consensus estimates by 7 cents. Revenue fell $1.4 YoY to $1.96 billion, missing the $2.1 billion consensus estimates. On a bright note, comparable sales rose 2.4% YoY. If we add global Foot Locker and Kids Foot Locker into the equation, then comparable sales actually grew by 2.8% YoY. Champs Sports and WSS banners also experienced comparable sales growth of 2.8% and 1.8%, respectively. Inventory levels fell 6.3% YoY.

Full-Year Guidance Looks Weak as Foot Locker Remains Cautious

Foot Locker issues Q4 2024 EPS of 70 cents to 80 cents, falling well short of the 95 cents consensus analyst estimates. Revenues are expected to fall 3.5% to 1.5%, resulting in a range of $2.30 billion to $2.35 billion versus $2.34 billion consensus estimates. Foot Locker lowers its full-year 2024 gross margin to 28.7% and 28.8%, down from 29.5% to 29.7%.

Foot Locker CEO Mary Dillon commented, "While our trends in early November landed below our expectations as consumers held back their spending ahead of the holiday season, we saw a meaningful and positive acceleration over the key Thanksgiving week period, especially in stores.”

Dillon opted to remain cautious, stating, "Despite that strong performance, we are taking a more cautious view and are lowering our full-year sales and earnings outlook due to a more promotional environment and softer consumer demand outside of key selling periods.”