October A Month to Forget For Retail
October sales aren't anything you want to spend too much time analyzing without a haz-mat suit.
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Let's start at the bottom, in terms of the alphabet and performance...
When I say that specialty is where love goes to die, the death looks like Zumiez. The company reported great Same Store Sales but nudged down expectations for the quarter and year on ESP. The result? A stock whacking that erases all of the gains for 2007 year to date and then some. The actual EPS guidance wasn't exceptionally far off the current consensus (92-94 cents vs. 97-99 prior guidance) but hiding in high-multiple specialty during market squalls is like hiding in a metal shed during a lightning storm.
No crying, no fighting it and no making Zumiez a portfolio pick for 2007. It's just time to move along and let ZUMZ see if it can fix itself.
The Bid Daddy's highly publicized price slashing was more PR grabbing Sound and Fury than actual price reducing. Still, this is a flat out disappointing number for WMT. Making it worse, the company is coming off weak results for 2006. The bar was set about as low as it can get and WMT still managed to trip over it.
The most interesting thing about Wal-Mart for the rest of the year is going to be seeing how they go about promoting for Christmas. When you start the season at the beginning of October it can make for a slightly anti-climactic season.
Lowered expectations then went ahead and beat the new number, coming in at the low end of the original estimates. Just as appreciating Marcel Marceau didn't mean you had to attend mime concerts, enjoying Target doesn't mean you have to buy the stock.
While still refusing to comment on a possible bid from an Icelandic investment group, it's notable that Sachs has declared November Bjork Week and focusing Christmas promotions on Elves (rather than their cruel capitalist overlord, Santa).
I took my daughter shopping for dress shirts and a nice lunch at Nordstrom last weekend. It is out of respect for her that I don't mention anything about JWN's sales and stock performance over the last quarter; there are simply no "ear muffs" sufficient to drown out the expletives required to really capture the losing streak JWN has gone on lately. The stock is trading at 12x trailing earnings; with any stability at all it could be a buy. Then again, Citigroup (C) trades at 8x and I'm not running out to buy that.
Children's Place (PLCE):
Nice pop this morning. If you stack "Decent Month" up against "Ex-CEO lawsuits, Disney contract woes, lousy consumer and general lack of direction" you get a graceful selling opportunity, from where I'm sitting.
Costco (COST) and Gap (GPS):
I'm concluding this brief tour of SSS at two of the best stocks today which have only that performance in common. Costco is a great company that looks like it's peaking in a tough era, or at least year, for it's space. Call COST the Larry Holmes of retail. In contrast, Gap is working an impossibly slow turnaround with the tail-wind of low expectations. Cost crushed sales estimates. Gap missed but raised EPS. Both stocks are working.
Wrap it up and hit the exits, kids; October sales aren't anything you want to spend too much time analyzing without a hazz-mat suit. We'll hear from the companies in more detail later this month when they report EPS for 3Q. With a few select exceptions the stocks have been trading horribly over the last month. While you can play the one off names from the long side (there's always room in a portfolio for a best of breed), the risk / reward balance for the retailers will continue to skew to the negative until they can get through the holidays and start rebuilding in '08.
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