Traders are making a killing betting against retail

pulse

March 1, 2017 3:42 PM

JC Penney has been the most profitable short in 2017.

People walk out of the going-out-of-business sale at Target Canada in Toronto.

No sector has been more profitable for short sellers in 2017 than traditional retail, according to a note from financial analytics firm S3 Partners.

In a note sent out to clients on Tuesday, S3’s head of research, Ihor Dusaniwsky, said that the top five most profitable short trades so far this year are all traditional brick and mortar retailers who “depended on strong foot traffic and higher margins to support their infrastructure and staff are being forced to find ways to cut costs, increase margins and eliminate underperforming locations.”

The note comes on the heels of another dismal earnings report from the sector, this time at the hands of Target, which fell 12.2% on Tuesday after missing on earnings and guidance. Short sellers have raked in more than $500 million in Target alone this year, amounting for a return on those positions of about 21%.

Interestingly, Target isn’t even providing the top return for shorts. That title belongs to JC Penney, which has awarded short sellers with a return of more than 25% so far in 2017.

And while traditional brick and mortar retailers have provided shorts with the biggest gains in 2017, discount retailers have been giving them headaches. Dusaniwsky says that space is home to the five least profitable short trades for the year. Ollie’s Bargain has saddled short sellers with a loss of more than 10% in 2017.

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