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Grim Expectations and Bland Realities For November Retail


Did American merchants manage to leap a low bar?


November got cold and the National Retail Federation (NRF) shifted the calendar to give the retailers a few extra days in November this year. Throw in daily national headlines regarding the impending death of the American Consumer and you've got the recipe for "Better than Expected" Same-Store-Sales.

Did American merchants manage to leap a low bar? Let's take a look by category.

Club Stores: Serving the Huddled Masses Yearning for Deep Discounts

The Club Category, small though it is, continued to rock this month. We discussed their outperformance last month in this very space. Since then the headline economy has continued to work in the discounters favor. Even the NY Times has jumped on the bandwagon, highlighting the Beltway's sudden thirst for populist discount, "reverse chic" party catering. It's the type of semi-ironic discount hunting fluff PR that Target (TGT) (nee: "Tar-jay") used to feast on and the club stores are living large with both BJ's (BJ) and Costco (COST) posting strong numbers for the second consecutive month.

Merging both the social circuit and stocks, if you happen to bump into Mr. and Mrs. Jeffmacke over the holidays and want to cause a visible rift, ask my better half why her husband has been talking a big game on loving Costco all year yet hasn't ever bought the stock. Great fun!

Specialty: Slightly Better Overall and Jos. A Banks' Random Sales Generation Machine

Generally decent numbers out of the specialty set, which continues to play out according to specialty retail stock trading Hoyle.

  • Rule One: Never try to pick a bottom in Specialty. Zumiez (ZUMZ), Chicos (CHS) and Hot Topic (HOTT) - all weaker than expected despite low expectations.

  • Rule Two: Stick with the trend-setters in weak times. Abercrombie (ANF) and Guess (GES) are posting big numbers despite what you hear about the economy. Just because I hope and pray Laura Ashley is the hip look by the time my daughter is in high school doesn't mean I can't recognize that Naughty Lolita continues to scream off the shelves for these chains. If you'll excuse me, I need to shop for nunneries in the upstate NY region.

  • Rule Three: Jos. A Banks (JOSB) simply has no idea what its sales are going to be from month to month. 15% SSS for JOSB in November, 5x ahead of expectations. What drove sales? If you can answer that question you're better than even money to be the next Jos. A Banks head of investor relations.

Department Stores: Not Dead Yet!

Macy's (M) was decent but cautious. Saks (SKS) was dynamite, fighting off the Icelandic investment groups. JW Nordstrom (JWN) sold enough dress shirts to me and Gaston Najarian to post better than expected numbers.

I'm not crazy about the traffic levels I see when I visit stores in my neighborhoods but the department stores continue to benefit from more efficient operations. If you want a clue as to where the improved profits are coming, check out the chart of Phillip Van Huesen (PVH).

The department store stocks are way, WAY off the highs. Unless JWN is taking down estimates in an enormous way for the next 12 months, the stock seems to be a compelling value anywhere near current levels.

Discount: Target as the Lou Holtz of Retail

Target (TGT) came in at 10.8% SSS. Wal-Mart (WMT) posted a 1.5% gain. Which chain is being cited as the disappointment of the day? Target, of course, which noted that it's going to be hard to hit its fourth quarter estimates unless sales pick up appreciably in the back half of December.

Beyond the idea of Target habitually talking down estimates the way Lou Holtz would once talk down Notre Dame's chances against Navy (as if Navy could ever beat ND), the market isn't necessarily wrong to be taking Target to task this morning. We aren't even half-way through the 4th quarter yet; it's very early for Target to be poor-mouthing results. What's more, Target's growth is levered to credit, Costco seems to be stealing some Target thunder and Minnesota's finest discounter hasn't been immune to disappointing over the last year or so.

Over the next twelve months, I'd rather own Target than Wal-Mart. I could be biased. I could be blind to the turnaround at Wal-Mart. I could be crazy. Of course, none of that matters because I don't actually have to own either stock over the next twelve months. In weak-ish retail times stick with the players with the hot hands and the truly beaten down stocks. From where I'm sitting that continues to be Costco on the hot-hand side and, possibly, a basket of Macy's, Gap (GPS) and JW Nordstrom on the beaten down half of the ledger.

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