‘Tis the Season? Retail’s Haves & Have Nots
Consumer confidence is booming and Black Friday sales, while still just estimated, look terrific. Alas, in terms of buying retail stocks, macro indicators can lead you astray. All retailers are not created equal. Same store sales for November came out today rendering all other information on the sector more or less useless for the balance of the year.
Same store sales (SSS) is defined as revenue growth compared to the same period last year for stores opened for less than one-year. November is the most important month for SSS as it tells investors who is and isn't positioned for a strong holiday season. Weak numbers suggest a merchant has bet wrong on product mix and promotion. There's no time to fix these problems before Christmas.
As Nesto puts it "people need to separate retail sales from retail stocks." He's right and today is the day to start culling the retail herd in your portfolio.
Nesto's running through the numbers and the stocks, seeing winners in staples like Costco (COST), which I own, Wal-Mart (WMT), and Whole Foods (WFM). Other Nesto champions include Harmon International (HAR) and the Limited (LTD). His chumps are Kohl's (KSS), Sears (SHLD) which barely qualifies as a retailer at this point, and Ralph Lauren (RL) which I think he was picking on because I own it.
I'm more focused on winners and losers within sub-sectors. Consider Macy's (M), Kohl's, and JC Penney (JCP). Macy's sales topped estimates, continuing a glorious year that's seen it's stock rise a zesty 26%. JC Penney's SSS fell 2% versus 1.6% expectations, and analysts and shoppers seem to be perfectly in synch in terms of their apathy towards the name.
Kohl's results were as ugly as you'll find this year. The company posted a 6.2% drop in SSS with analysts expecting positive 2%. CEO Kevin Mansell called the results "disappointing." I'd use terms such as hideous, humiliating, and horrific.
Kohl's shares are sharply lower today, while Macy's flat. At first blush it may be tempting to call the move in KSS an overreaction and buy the dip. But it's not an overreaction and my money isn't going near Kohl's stock or into a store for that matter. The chain missed badly at the worst possible time of the year, then offered excuses and a description of the results that suggests losing is part of its culture. In contrast, Macy's has become a great company and is peaking at the right time of the year.
You don't always get what you pay for in the mall, but you do when you shop for retail stocks this time of year. Do yourself a favor and stick with today's winners; they're the ones set to have a great fourth quarter. The others are dead stocks walking.
