Rumors of Retail's Death Greatly Exaggerated

This year's back-to-school season isn't necessarily a boon for many retailers, as consumers grapple with thin wallets and money pressures. However, there were definitely real signs of life, even as some retailers disappointed with their August same-store sales data today.

Good, bad, and ugly
Here's the August data for seven retailers, including our Motley Fool CAPS community's take on the stocks.

Company

CAPS Score
(5 max)

August Comps

August Sales

Stock Price Impact

American Eagle Outfitters (NYSE: AEO  )

*****

(5.0%)

3.0%

2.1%

Zumiez (Nasdaq: ZUMZ  )

****

0.2%

13.1%

0.18%

Wal-Mart (NYSE: WMT  )

***

3.0%

8.7%

1.26%

Aeropostale (NYSE: ARO  )

**

13.0%

24.0%

(2.02%)

The Buckle (NYSE: BKE  )

**

22.4%

29.3%

3.54%

Abercrombie & Fitch (NYSE: ANF  )

**

(11.0%)

(5.0%)

(6.43%)

Gap (NYSE: GPS  )

*

(8.0%)

(5.0%)

(2.65%)

All CAPS data as of Sept. 4, 2008; stock price increases are intraday as of this writing.

Same story, different day
Honestly, these figures don't strike me as very surprising. Wal-Mart has been firing on all cylinders for almost a year now, as consumers have increasingly looked for discounted goods and remembered that that's what Wal-Mart's all about.

Aeropostale has also been able to count itself among the few retailers that have been able to consistently lure traffic and transactions despite the tough times, and its impressive comps data for August shows it's not done yet.

Gap has long struggled to prove that it can do more than simply cut costs and actually lure shoppers back in the door. Talk of how Gap's August comps were better than analysts expected doesn't change the fact that they still stink. And I think Abercrombie has seriously lost its way.

Surprising sentiment
If anything interests me, it's the community sentiment attached to these stocks. American Eagle Outfitters and Zumiez -- recommended by Motley Fool Stock Advisor and Motley Fool Hidden Gems, respectively -- are both top of the pops when it comes to CAPS sentiment for these seven stocks.

Of course, both stocks have gotten mercilessly beaten down over recent months, so I'm sure many bargain hunters have grown more and more bullish on the names. (Understood; I've got both marked as outperforms in my CAPS page and I've often mentioned their undervalued attributes when I've written about retail stocks.)

The real anomaly, in more ways than one, may very well be The Buckle. This is not the first time that that retailer (whose name I can't resist poking fun at) has reported insanely impressive comps in a tough environment. In fact, when I covered June same-store sales, I was taken aback by the fact that The Buckle had reported a stunning 28.9% increase (and couldn't resist poking fun at what I've always considered a silly name).

Even more interesting, though, the CAPS community gives the stock a paltry two-star rating. Sometimes it's good to be a contrarian, and I'm becoming more and more curious. Even though it looked impressive back in March, I didn't do any extra due diligence and have yet to set foot in an actual Buckle store. I'm thinking it's a good time to dig a little further into The Buckle, since I'm really starting to wonder if it's a good stock idea (or at the very least, try to figure out what its magic touch is).

Picking winners
Retail's not dead by any stretch, and I think investors make a huge mistake when they dismiss the entire industry out of hand due to the difficult economic climate and exposure to consumers. (And don't get me started on silliness like trading retail stocks on daily oil fluctuations. Oh please.)

From months of tracking retail comps, the retailers who have the right stuff are absolutely kicking butt and taking names despite macroeconomic factors. There are going to be some major losers in a tough economy and probably even some deaths (in fact, that has already begun), but we investors have to carefully focus on picking the winners for our portfolios.

As always, I think it's a good idea to focus on strong retailers with great brands, and of course, solid balance sheets. Those that are falling on temporary hard times but haven't suffered any real brand damage (and have plenty of cash and little debt) also provide great bargain opportunities.

For related Foolishness, shop around these mall-based articles:

Looking to add some dirt cheap retailers before it's too late? Check out Stock Advisor and Hidden Gems, where our advisors have selected their top retail picks, free for 30 days.

Alyce Lomax does not own shares of any of the companies mentioned. Zumiez is a Motley Fool Hidden Gems selection. Wal-Mart Stores is a Motley Fool Inside Value recommendation. Gap and American Eagle Outfitters are Motley Fool Stock Advisor picks. The Fool owns shares of American Eagle Outfitters. The Fool has a disclosure policy.


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