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Retail Still Trying to Rebound

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Shoppers still have the upper hand, and they're keeping it in their empty pockets.

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Retailers across the board are inching higher today as September's monthly same-store sales topped estimates.

Sure, Wall Street's low-balled estimates were easily topped and sales declines appear to be tapering off. Unfortunately, the results don't really indicate a stabilizing consumer environment.

Think back to fall 2008. The global financial system was collapsing and consumer confidence had plummeted. No one was spending as the entire world was in a state of fear.
Therefore, it's no surprise that the International Council of Shopping Center recorded a 0.1% overall comps increase -- Goldman Sachs is no real feat as improving year-over-year sales this fall is an easy achievement these days.

Total retail sales are still lingering around 2005 levels. And even though many retailers did manage to slightly increase September comps, some are still posting declines, including Macy's (M), Target (TGT), and American Eagle (AEO).



Bottom line is that the September numbers still reveal that consumers are very hesitant to spend, and when they do spend, they're seeking out good deals.

TJ Maxx (TJX) and Ross Stores (ROSS) both released strong monthly sales gains and Costco's (COST) quarterly same-store sales released in yesterday's quarterly earnings rose 1%.

Saks (SKS), on the other hand, reported a double-digit decline showing that even upscale shoppers still haven't fully entered recovery mode yet.

In addition to the easy year-over-year comparisons, September comps aren't truly indicative of the retail sector's condition because retailers are still heavily discounting merchandise to attract shoppers. Until we begin to see margin improvements along with the revenue increase, I don't think monthly comps are anything to get excited about.

In reality, using 2006 to 2007 sales figures as benchmarks for growth makes more sense, as that was the last period of time when retailers were booming. Of course, that was the era of abused credit and home equity, so it will take us a very long time to reach those figures again. However, sale increases won't truly be meaningful until they do surpass those levels.

It's certainly difficult to pinpoint exactly when consumer spending will stabilize, but I don't think the signs are pointing to improvement anytime soon.

Persistent weakness is setting retailers up for another disastrous holiday season as I'm very doubtful that consumer spending trends will change anytime soon. My only hope is that that retailers are at least better prepared for another round of weak holiday sales as many found themselves overstocked with unwanted inventory last year, which ultimately killed margins.

Wall Street may be showing signs of optimism from today's comps, but I'm still maintaining my bearish stance on the overall retail sector.

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