This week is going to be a very critical week for the retail sector. With many retail stocks expressing low valuations due to poor fundamental metric performances, that valuation may worsen or improve with monthly retail sales data coming out on Friday. The Census Bureau will report March retail sales on Friday before the opening of the trading day on Wall Street. After a deceleration in February retail sales, growing only .1% MoM and 5.7% YOY, many retail names came under increasing pressure and found new 52 week lows. 

Many of the retail names in question are centered in the department store segment of the retail business segment. Non-store retailers have significantly outperformed traditional brick & mortar department store retailers for several years now, taking market share and sales dollars. Some of the retail brands that have continued to underperform since the February retail sales results were released include, Bed Bath & Beyond (BBBY), J.C. Penney (JCP) Target (TGT), Macy’s (M) Kohl’s (KSS) and even Wal-Mart (WMT) until a positive upgrade came out on the retailer last week. There have actually been some conflicting analyst reports lately on Wal-Mart with BMO Capital warning investors that the retailers Q1 sales comp may not be achieved based on pricing data gathered. However, Telsey upgraded Wal-Mart from Market Perform to Outperform with a price target of $82.00 (from $73.00). Analyst Joseph Feldman says WMT looks to be regaining dominance in the physical retail game and sees the company exerting new strength in the digital market citing stronger sales. He expects Sams’s Club to regain strength under new leadership.

Last week Bed Bath & Beyond reported YOY declines for most every metric of relevance for the Q4 2016 period while issuing FY17 guidance that express negative EPS growth and further gross margin contractions. Having said that, shares of BBBY took the poor performance and guidance in stride, actually rising on a rather subdued earnings report. Having said that, it remains to be seen if this surge in stock performance can stand the test of time. Even with shares of BBBY surging last week, the share price is still below $40 and did not retest that level after achieving it on the reaction to its Q4 2016 earnings report. Shares are trading at less than a 10 PE, which is a post financial crisis low trading multiple for shares, but in-line with gross margins trading below financial crisis territory. While many might look at BBBY’s valuation and view it as cheap, given the steady decline in earnings and gross margin performance, cheap could become cheaper in the future and unless the fundamental performance of the company improves.