Gap gets hit after weak report but all is not lost for retail

Jeff Macke Yahoo Finance

Shares of Gap (GPS) are getting crunched this morning after the company reported weaker than expected sales. The retailer said comp store sales for June were down 2%. Family Dollar (FDO) even jumped in yesterday to blame the consumer for its weak results.

The easy story here is to blame the consumer. After all, the Container Store (TCS) says we're in a funk and Walmart's U.S. head told us earlier this weak that low-end shoppers aren't spending money like they used to. 

Unfortunately for those looking for pat explanations the big picture isn't so clean. CostCo (COST) reported comps that were up 6%. Limited Brands said sales were up less than expected but positive regardless. Even in grocery where margins are the absolute worst there are signs of improvement. Krogers (KR) CEO told investors last month that customers were stepping up to high end pet food and organics. 

In the bigger economic picture consumers are buying cars at a stunning rate. General Motors (GM) is growing sales despite recalling more cars already in 2014 than they sold over the last three years combined. You don't have to be an economist, analyst or sociologist to realize that people who are worried about their next paycheck don't buy cars or high end dog food.

Of the seven stores followed by Thompson Reuters the average comp store sales gain for June was a very respectable 4.5%. That's better than expected and nothing like the misery being reported by Gap and Walmart.

Weak economic growth trends and bad weather have a knack for finding merchants with the weakest management. It's annoying to hear executives whine but it's an opportunity for investors. Next week a sort of summer polar vortex is going to hit the Midwest and Northeast. Good retailers are already moving merchandise to meet demand in those areas. It's a great chance to sell remaining sweaters from spring and move things like long sleeve shirts and jeans for kids out to the aisles. Good companies won't say a thing about the cold in the weeks to come.

Bad retailers on the other hand are already penning drafts of earnings warnings for the third quarter. The economy isn't great but plenty of companies are doing better than just OK. As an investor, the rule of thumb is this: the more a retail CEO claims to know about weather or economics the less you want to own his stock.

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