Retail Round-Up: What Have We Learned?
"Subprime Slime" didn't seem to ooze into the aisles of Costco.
"Well, isn't that special?"
-The Church Lady
Click here to enlarge.
It wasn't special for the retailers in July. In fact, in a month generally expected to be a mess, the specialty sector was the one sector which managed to live all the way down to expectations. Jos. A Banks (JOSB), Abercrombie & Fitch (ANF), Chicos (CHS) and Pacific Sun (PSUN) all managed to come up short as traffic gravitated to department store stalwarts like Saks (SKS) and Nordstrom (JWN).
What did we learn and how can we trade it? Let's break it down by sector, best to worst:
Costco (COST) and Target (TGT) rocked the house. While that's less than shocking out of either of these stalwarts, keep in mind that the performance came on the heels of Wal-Mart's (WMT) headline-grabbing "back to school price cuts on 16,000 items!".
Much could, and is, being made of the idea that the success of Costco and Target is evidence of a consumer trading down. Nonsense. The consumer may be trading down but they can get lower prices than are found at COST and TGT. Costco is the best club store going, Target is the best discounter. If Wal-Mart couldn't take a dent out of either chain with front-page price drops a month in front of the actual back-to-school shopping season, it's more evidence that Wal-Mart remains deeply troubled.
Wal-Mart's problems are Target and Costco's gains. In a consumer world which is looking increasingly zero-sum (read: "No growth, just retailers stealing from one another"); stick with the guys taking, or at least retaining, market share without competing solely on price.
Saks (SKS) and Nordstrom (JWN) simply rocked the house. They demonstrably took share from specialty. The "traffic at the malls was weak" theme was only a half truth. Nordstrom is located in malls, as are most Saks locations. It wasn't that the mall traffic was so horrible, it's simply that much of that traffic stayed in the anchor stores at the corner of the mall, rather than going inside.
I'm long Nordstrom and plan to stay that way. Given the horror-show that is the tape, staying long JWN is about as strong an endorsement as I can give a rather upscale retailer.
Remember when Macy's (M) was being rumored to get purchased for over $40 a share? Suffice it to say, July results suggest the company has plenty of work to do internally before they go out shopping themselves.
Lump Macy's stock in with that of J.C. Penney (JCP), Kohl's (KSS) and the abysmal Dillard's (DDS) (another chain where buy-out rumors have gone from "implausible" to "a cruel joke" for shareholders): there may be a price level at which I'd be interested in getting long, I just can't think of it at the moment.
Zumiez (ZUMZ) looked pretty good. Jos. A Banks was lousy but the stock seems over-done at down 10% intraday today.
It's hard to find very many positive things to note about the rest of the names. The stocks are widely shorted and bad news seemed to be in the stocks for the most part. Beyond that... well, during the back to school season it seems appropriate to remind ourselves of an educational rule that I ignore on a nightly basis: if you can't have anything nice to say, don't say anything at all.
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