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Wal-Mart, Aeropostale Lead Lackluster Retail

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Best of breed simply treading water.

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Retail sales during the holiday season were terrible. If you didn't know that already, you're either in prison or in a coma - or you're a shut-in without any contact with the outside world (in which case I hope you at least have a super-cool online alter ego).

I'm leading with this dead-horse beating of a statement for 2 reasons: First, retail watchers must start every discussion with a variant on "obviously, the results were simply abysmal." Second, when the nature of a news event ("good" or "bad") is as widely expected as "2008 was a lousy Christmas," it allows the the smart trader to review the news with a focus not on getting insight into the mind of the consumer (think Heart of Darkness) and focus on companies reporting outlier results.

Forget "better than expected but negative." Losing the game but covering the spread is worthless everywhere expect football betting.

Regardless of expectations, retailers selling less from month to month generally aren't turnaround stories; they're simply dying at a faster or slower pace than their peers. Companies which manage to actually miss rock-bottom estimates simply have no place in a portfolio - not even for the willfully self-abusive who would be better off going to a Marley and Me marathon.

The merchants I'm paying attention to this month are those who managed to gain sales over this time last year, ideally without trashing their margins. Positive same-store sales, especially those coming in ahead of expectations, are the safest hunting ground in a market where the losers are left for dead. This month, our homework is severely limited as the number of retailers clearing that screen is extremely slim this month.

By the above standards, the winners in December were:

  • Aeropostale (ARO): +12% vs. (5.1%) estimates
  • BJ's Wholesale (BJ): +5.9% vs. 5% estimates
  • Hot Topic (HOTT): +4.3% vs. 1.9% estimates
  • Wal-Mart (WMT): +1.7% vs. 2.9% estimate

Even for headline victors, it's never the news, it's the reaction. Aeropostale beat on sales and guided earnings higher, arguably the best sales results of the day. The stock is climbing all of 2-bits as I write. BJ's and Hot Topic haven't traded higher for an instant today, despite beating expectations. Neither is much of an operator in general and, in the case of Hot Topic, selling one goth shirt and a lip piercing would have put it ahead of 2007's results.

Which brings us to Wal-Mart, a company I've often referred to as "the only retailer which currently matters". Wal-Mart was 1 of only 3 of the retailers I follow monthly that had a positive sales estimate for the month as analysts were looking for a 2.9% SSS gain from Bentonville's finest.

By comparison, Target (TGT) had guided to a preposterously bad estimate - a 9% drop in December revenues. As a result, when Target came in at (4.1%) for the month, it "beat expectations," while Wal-Mart missed with a plus 1.7% period - then added a vague and only slightly comprehensible warning for its quarter. Suffice it to say, it was Wal-Mart's stock which got pounded today.

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Position in WMT

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