Retail stocks skyrocket, led by Macy's

Retail stocks came back from the dead Thursday amid signs the U.S. shopper is still spending.

Wall Street was loading up its shopping cart Thursday with retail stocks, driving shares up sharply in the hard-hit sector after department-store chains Macy's and Kohl's both beat quarterly profit and sales forecasts.The better-than-expected results was a huge relief to investors, as it signals that the U.S. consumer remains strong -- easing fears that slowing sales momentum recently at consumer-focused companies like automaker Ford and fast-food giant McDonald's would infect the entire retail space.

Investors also cheered an announcement by Macy's that it would close 100, or nearly 15%, of its 728 stores in early 2017, a move that Macy's CEO Terry Lundgren says was a "proactive" step to jumpstart growth going forward and focus more aggressively on sales generated in the increasingly important digital and mobile space.

Macy's stock soared, surging neary $6 a share, or 17%, to $39.78. Still, despite the massive rebound, Macy's is still down nearly 40% from its 52-week high.

Shares of other retailers rose in sympathy. The broad SPDR S&P Retail exchange traded fund was up nearly 2%. Shares of Kohl's were up nearly 15%. High-end retailer Nordstrom saw its stock shoot up nearly 7%. Sears was 2% higher. Apparel maker Gap was up 3.5% and deparment store J.C. Penney was up nearly 8%.

Indeed, retail stocks have been among the worst performers on Wall Street over the past 12 months, as traditional brick-and-mortar retailers feel the pinch from the aggressive competition and ongoing push toward Internet commerce from the likes of online retail juggernauts like Amazon.com.

Lundgren stressed that the U.S. has too many retail outlets. He said the U.S. has 7.3 square feet of retail space for every American, or more than five times more than most other developed economies. The time, he says, has come to cut bait and close stores that are less profitable and focus on the winners. "We are not waiting anymore," Lundgren told business channel CNBC.

Wall Street applauded the move and candor.

"Analysts and investors always want to see targeted cost-cutting and 'right-sizing' of operations," says Quincy Krosby, market strategist at Prudential Financial.

The strong earnings reports today undid some of the negativity caused by retailers during the first-quarter earnings season, Krosby adds.

"Last quarter, the weak earnings reported by retail stores dented the overall market as it questioned the viability of the U.S. consumer as the catalyst for economic growth -- and consumer spending represents 70% of U.S. GDP," Krosby tells Paste BN.

Greg Rutherford, CEO and co-founder of Cavalier Investments, says the U.S. consumer is benefiting from low gas prices, slightly higher wages, more jobs and low interest rates.

"From a consmer standpoint, all those signs are positive," he says.

Macy's announced second-quarter results Thursday. Sales fell 3.9% to about $5.9 billion, beating analyst expectations for sales of $5.8 billion, according to S&P Global Market Intelligence. Sales at stores open at least a year fell 2%. The company also beat earnings estimates, posting a gain of 54 cents a share, vs. the 48 cents a share estimate.  Investors seemed pleased with the financial performance and plans to become a leaner business.

Kohl's topped earnings per share forecasts by 19 cents.