Retail Sell-off: Discounters, Auto Stores Lead Losses

A rout in consumer stocks gained more steam on Friday, as shares of Ross Stores led a retreat of other discount stores to cap off a bleak week for retailers.

Ross shares were down 24.4% at $70.06 after falling as low as $69.75 after the discount apparel retailer cut its 2022 same-store-sales estimate to a decline of 2%-4% versus an earlier flat-to-up 3% target.

Dollar General, which is due to report earnings next week, lost 8.4% after falling 14% in the last three sessions. Dollar Tree fell 7.7%. T.J. Maxx parent co TJX Co fell 8.2%.

Among auto retailers, Advance Auto Parts was down 9.7% and Autozone fell 9.1% with both expected to report quarterly results in the week ahead. Shares in rival O' Reilly Auto were down 5.8%.

While Walmart and Target earlier this week reported that store traffic was still strong, high inflation ate into their profits. With fuel and freight costs still rising and supply chains still disrupted Mona Mahajan, senior investment strategist at Edward Jones, sees sector-wide repercussions.

"It's hard to see how some of these smaller retailers can withstand the margin pressures if some giants like Walmart and Target haven't been able to," she said.

But generally healthy balance sheets and retail sales data released earlier this week suggest healthy U.S. spending.

"In a recessionary environment you'd see consumers going towards those bargain brands for sure. But we haven't yet seen that," Mahajan said.

The S&P 500 Consumer discretionary sector was down 3.7% after hitting its lowest point since July 2020, on track for a weekly decline of more than 9%, its seventh in a row and its biggest weekly loss since March 2020.

Target was down 1.1%, tracking a roughly 31% weekly loss. Walmart falling 1.0%, was eying a 20% weekly drop.

Macys was down 9.5% and Kohl's, was down 13.4% and about 19% for the week after its results also disappointed.