News Flash: Retail Stinks!

Surprise, surprise: November same-store sales data was a major disappointment. Many retailers reported lackluster or even downright bad comps for the month.

Overall, the sector experienced a mere 0.5% increase in sales. The disturbing caveat here is that last November's sales were plainly awful, having dropped 7.8% (financial crisis, anyone?). As plenty of media outlets are pointing out, the comparison should have been easy to surpass.

More signs of strife than life
Let's see how a handful of retailers fared in November:

*All data from CAPS and company press releases.

Costco's numbers didn't look too bad, but the discount retailer still missed analysts' expectations, even with a little boost from the weak dollar and pricier gasoline.

Once again, Abercrombie served up its usual ghastly same-store sales declines. Saks was even worse, sustaining a 26% comps plunge.

Over the last year or so, I've talked up Buckle as a retail outlier -- a teen-centric, mall-based retailer faring reasonably well, despite the recessionary headwinds. Although today's comps numbers disappointed investors, let's bear in mind that Buckle's actually up against tough comparisons, given the strong results it posted amid last year's economic meltdown. (For goodness' sake, in November 2008 Buckle's same-store sales rose 15%, and net sales surged 21.6%, even as most other retailers went down in flames.)

Play it safe!
Despite assurances that the economy is improving, it's clear that many consumers are not feeling better, plagued by high unemployment and the need to pay down household debt. October's comps gave little reason for optimism; some of us expected a bleaker Black Friday, and sure enough, it seems like Black Friday was a bomb.

Interestingly, online stores have shown signs of strength. Perhaps bricks-and-mortar retailers should fear the power of one-stop e-commerce powerhouses like Amazon.com (NASDAQ:AMZN).

The outlook for the holiday shopping season promises a tough environment, with plenty of price wars and eroding sales and profit margins. Given all these signals, now is no time for investors to mess around with debt-laden retailers in need of major turnarounds, or second-string companies with little or no brand loyalty.

Instead, investors should take a defensive approach, gravitating toward retailers with strong brands, solid management teams, and balance sheets with little or no debt. After the holiday shopping season's over, some weaker retailers may be hanging out the "Going Out of Business Sale" signs. Investors need to make sure they're holding retail stocks that can survive the ugly season ahead.