Don't Bank on a Retail Rebound Yet

Frigid January yielded a pleasant surprise for retail watchers. Sales heated up for the month, but Fools shouldn't let their caution thaw just yet.

Overall, same-store sales jumped 3.3%, according to Thomson Reuters' calculations. Analysts had expected a 2.5% increase. Like December's holiday miracle, though, let's not forget the comparison was an easy one; in January 2009, sales fell 5.7%.

Here's how a few well-known retailers' January sales figures stacked up:

Company

CAPS Rating (out of 5)

January Comps

January Net Sales

Costco (Nasdaq: COST  )

****

8%

10%

Abercrombie & Fitch (NYSE: ANF  )

*

8%

16%

Buckle (NYSE: BKE  )

****

(1.2%)

4.4%

American Eagle Outfitters (NYSE: AEO  )

****

10%

18%

Macy's (NYSE: M  )

*

3.4%

3.4%

Target (NYSE: TGT  )

***

0.5%

3.6%

*All data from CAPS and company press releases.

Remember, one month's comps are never a good reason to make a hasty buy or sell decision. Some of the data might seem heartening, but there are plenty of reasons for investors to remain wary about the outlook for retail stocks.

Costco experienced a nice comps boost in January, but without a soft dollar or the effects of inflation in gas prices, same-store sales would have only risen 2% in January. Another well-known discounter, Target, reported an anemic 0.5% increase in comps.

The teen retail sector held a few interesting surprise twists, as Abercrombie & Fitch and American Eagle Outfitters both reported impressive January comps. However, bear in mind that both are up against easy comparisons year over year.

On the other hand, Buckle, which has been a pretty consistent teen retail winner through the recessionary times, ended its long string of impressive positive comps with a 1.2% decrease in January same-store sales.

Don't get too excited…
Investors shouldn't forget that January's seemingly victorious showing probably owed heavily to temporary factors: a major boost from gift cards received during the holidays, as well as many shoppers' penchant for post-holiday bargain hunting.

Unfortunately, unemployment remains frightfully high, and today's job claims data confirmed that this state of affairs won't magically improve anytime soon. Many consumers are strapped, and will be for a while, which does not bode well for weaker retailers.

Still, there are good opportunities for careful and discriminating investors. For example, Buckle's a solid stock idea, and the price got even better today. As the recession took hold, Buckle performed very well operationally, obviously resonating with teen customers, yet its price-to-earnings multiple has long been low compared to struggling peers like Abercrombie.

Today's major dip in Buckle's price represents a great buying opportunity; Abercrombie was already way overpriced before it actually showed signs of life on its top line, and personally, I wouldn't touch that stock with a 10-foot pole right now. Abercrombie trades at 37 times forward earnings; Buckle trades at just 11 times forward earnings. Given the operational performance of both over the last year or two, it's a no-brainer that Buckle still looks like the better buy.

Costco also remains a great retail stock idea, given its stellar management and its focus on reduced-price goods. The company trades at 20 times forward earnings, which is pretty high compared to peers like Target and Wal-Mart (NYSE: WMT  ) , but it strikes me as the gold standard among discount retailers.

Am I too negative on retail's outlook for the coming months? What retail stocks are on your watch list? Which would you gladly avoid? Share your thoughts in the comment box below.

Costco and Wal-Mart are Motley Fool Inside Value recommendations. Costco is a Stock Advisor selection. The Fool has established a bear put spread position on Abercrombie & Fitch. The Fool owns shares of Costco. Try any of our Foolish newsletter services free for 30 days.

Alyce Lomax does not own shares of any of the companies mentioned. The Fool has a disclosure policy.


Read/Post Comments (1) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 04, 2010, at 7:42 PM, tydi25 wrote:

    Retail overall (including WALMART) may have a definite poor outlook but alot of smaller and medium retailers are souring with the lost sales at WALMART. remember even with 70-80 billion in sales, COSTCO can gain a 10% increase with about every 1.6 percent negative comp coming from WMT! IMAGINE THE EFFECT ON stores that only do a few billion or hundreds of millions! WMT HUGE CUTS IN INVENTORY (15-20% of products gone!), SERVICE (25 fewer people and not just in SAMS!) and loyalty (due to HUGE price increases and recent changes) have caused huge negative comps in DEC and JAN to the benefit of all the smaller retailers!

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1103816, ~/Articles/ArticleHandler.aspx, 8/28/2014 1:30:27 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement