There are some strange happenings going on in the world of retail today. Everyone seems pretty positive on retail now after being very negative just six months ago. This doesn't surprise me. Anyone that follows retail has seen it before, but let's take a look at some of the companies that have reported their same-store sales numbers in the last 24 hours, and see how the market is reacting.
First up is American Eagle Outfitters (Nasdaq: AEOS ) . The consensus estimate I saw from Reuters called for a 3.8% same-store sales increase, and the company slightly missed this by turning in 3%. In my opinion, that's not a material miss, because companies have many other options at their disposal for delivering profit growth. What's interesting is that such a performance is normally worthy of a tepid reaction from investors, but instead American Eagle Outfitters' shares were up 4% on Thursday.
A bit more interesting is Aeropostale (NYSE: ARO ) , which was expected to report a comparable-store sales decline of around 2.9%, but instead came in with a decline of 9.3%. Normally, that magnitude of a miss would be enough to send the market into a tizzy, but Aeropostale is up more strongly than American Eagle, with more than a 6% gain on the day Thursday.
There are others, too. Gap (NYSE: GPS ) , which has had an abysmal run of same-store sales results, continued the trend with a same-store-sales decline of 13% versus the expected 7.9% drop. Yet Gap shares are down less than 1% today. I'm a bit disappointed here, because I have Gap on my deep-value radar and I've been hoping investors will basically give up on the company, but it doesn't look like that is going to happen right now. New York & Co. (NYSE: NWY ) has a tale similar to Gap and Aeropostale; its same-store sales were down more than expected, but its shares are up more than 4%. It should be noted that New York & Co. did mention that it sees same-store sales trending positive next month.
Each company has tried to explain away its disappointing March sales by noting that the Easter holiday falls in April this year as opposed to in March last year, and that the Easter holiday weekend is generally a good one for them. But let's not pretend like people coming up with estimates were unaware of where Easter falls this year. In addition, some companies have provided other reasons (or excuses) for their current performance, as well as reasons for why their performance should be better or worse in the future.
But I think there is a simpler explanation for understanding retailers and retail investments. It's something my Foolish colleague, Seth Jayson, and I talk about often. The best time to invest in a retailer is when expectations are low and a valuation analysis suggests that little to no growth is expected. That way, if little or no growth materializes over a year or two, your "expectation-proof" portfolio will not react too badly and you will avoid a steep loss. However, if it turns out that everybody still needs T-shirts, denim, khakis, and the other odds and ends, then it's likely your portfolio will experience pretty pleasing gains from the better-than-expected results. My favorite part of such a strategy is that you don't have to get entirely wrapped up in a sales performance for any individual month or try to make sense of why sales went one way and stock prices the other. Make a reasonable assessment of what a company can do and pay a reasonable price for that assessment -- leave all the other guessing-game activity to everyone else.
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