(Bloomberg) -- A slew of retailers from Best Buy Co (NYSE:BBY). to Abercrombie & Fitch Co. blew past earnings expectations Tuesday, sparking a rally in their shares at the start of a key holiday season.
Consumer-electronics retailer Best Buy was the top-performing stock in the S&P 500 Index Tuesday with a more than 10% gain after improving its annual outlook for profit and comparable sales. Abercrombie, American Eagle Outfitters (NYSE:AEO) Inc. and Burlington Stores (NYSE:BURL) Inc. climbed at least 15% each on better-than-expected quarterly reports.
Michael O’Rourke, chief market strategist at Jonestrading, viewed the retailers’ earnings reports as better than feared, saying expectations for the space have been low ever since many retailers cut their annual profit forecasts in May.
“The smaller retailers who reported the past couple of weeks have benefited from the expectations reset,” he said. “Managing inventory and margin pressure in the inflationary environment remains a headwind, but they are making progress.”
The reassuring updates are providing a welcome boost for retail stocks, which have underperformed the broader equities market this year. The positive reports also come just days ahead of Black Friday, which kicks off the all-important holiday shopping season in earnest. The fourth quarter typically represents the strongest period of sales for retailers, though this year, more stores and chains are warning that frugal shoppers are going to cut into their bottom lines.
Read more: Holiday Shopping Looks Anything But Festive for Retail Stocks
Wells Fargo (NYSE:WFC) Securities analyst Zachary Fadem said the holiday shopping season will be a “big swing factor” and the next major catalyst for Best Buy shares. He reiterated his equal weight rating on the stock, awaiting greater visibility.
The S&P Supercomposite Apparel Retail Index rose as much as 2.5% Tuesday, led by gains in Abercrombie and American Eagle, before paring some of the advance. The index is up for a third day and has traded around the highest level since the start of the year in recent sessions following a deluge of consumer-focused earnings reports last week.
Dollar Tree Inc (NASDAQ:DLTR).’s weaker-than-expected update stood in contrast to other retailers’ reports. The deep-discount retailer was the worst-performing stock on the S&P 500 Tuesday after projecting that annual earnings per share will come in at the lower end of its previous outlook range.
Department-store operator Nordstrom Inc (NYSE:JWN). will post quarterly results after markets close Tuesday, capping the wave of retailer earnings reports for the holiday-shortened week.
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