Black Friday investors discounted shares of major retailers before the big shopping day, giving short sellers a $2 billion gain on Tuesday as the biggest retailers post losses ahead of the holiday season, according to a report by S3 Partners, a financial technology and analytics firm.
Alibaba Group, which has short interest of $16.7 billion, was the biggest winner for the short sellers, with a $502 million gain Tuesday, according to the report.
On the flip side, several hedge funds and other firms may have been caught with losses, having bought into the stock during the third quarter. These include Soroban Capital Partners, Sachem Head Capital Management, Citadel, Farallon Capital Management, Ascend Capital, and Soros Fund Management, according to recent 13F filings. The stock is down more than 11 percent since the end of September, when those funds held the stock.
Short sellers of Amazon, the second-most-shorted retailer with $7.6 billion in short interest, only made $54 million Tuesday. But since the end of September, the stock has fallen 25 percent, giving short sellers much bigger gains during that time frame.
As with Alibaba, that likely means pain for the several hedge funds that bought into the stock during the third quarter. These include Element Capital Management, Hoplite Capital Management, PDT Partners, Highbridge Capital Management, and Pennant Capital (which converted to a family office earlier this year), according to 13F filings.
On Tuesday, other retail winners for short sellers were Target (a gain of $223 million), Kohl’s ($165 million), and L Brands ($87 million). Target has $2.1 billion in short interest, Kohl’s has $2.0 billion, and L Brands has $534 million, according to S3 Analytics.
Retailers have been the most heavily shorted sector in the U.S., with $70.6 billion of short interest, S3 Partners reported. The gains by those short sellers were made Tuesday as the stock market slid again, with the Standard & Poor’s 500 stock index turning negative for the year.
“Most of the larger retailers posted impressive previous quarter sales but investors are looking closely for signs for potential holiday misses,” Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners, wrote in a note Tuesday.
Dusaniwsky says profit margins at Target, Kohls, and TJX “may not meet expectations as they ramp up e-commerce, shipping and remodel stores to lure in buyers.”
He mentioned that L Brands is cutting its dividend, Lowes is closing down two home improvement subsidiaries and its Mexico operations, and of course, Sears has filed for bankruptcy.
Dusaniwsky said he expects more profits for short sellers betting on retail stocks, as well as FedEx Corp. and United Parcel Service, which served up $55 million in mark-to-market profits for short sellers Tuesday.
That said, the stocks of some retailers rose Tuesday, delivering losses to shorts. These include Pinduoduo, with $91 million in mark-to-market losses for short sellers; Best Buy (-$39 million); Urban Outfitters (-$21 million); and Wayfair (-$18 million).
Retails stocks have been hit by concerns about Trump’s trade battles, higher wages, and the possibility of weaker demand.