When Will Retail Finally Turn?

Though many people seem convinced that an economic recovery is right around the corner, consumers clearly remain reluctant to spend. July same-store sales tell a downright dismal tale.

Retail just can't cheer up
According to Goldman Sachs and The International Council of Shopping Centers, total retail comps fell 5% in July for more than 50 retailers, marking the 11th quarterly plunge in a row. (Notably, the figure excludes Wal-Mart Stores (NYSE:WMT), which recently decided to stop disclosing its sales data on a monthly basis).

Let's take a look at a few of the more dramatic July comps numbers:

*All information from CAPS and company press releases.

For the most part, the figures are uninspiring. Abercrombie & Fitch remains particularly plagued by heinous double-digit drops in comps month after month. If the lousy economy weren't bad enough, it seems the retailer's brands may have also lost their once-trendy luster with teenaged shoppers.

There's some buzz about how Gap's figures were better than analysts expected. The retailer guided for second-quarter earnings per share that beat analyst estimates. Gap is one of the few retailers with a soaring stock price today, but don't lunge for those shares just yet.

For years on end, Gap's long-promised turnaround has never come to to pass. The company can cut costs all it wants to improve profitability, but until its sales start showing more signs of life, investors should stay the heck away. Gap remains a gamble.

It's not surprise that Aeropostale and Buckle are both anomalies in the above list -- they've been retail outliers for ages now. However, both are taking their lumps today, with Buckle enduring the worst beatdown; its shares are down about 15% at my last check. I'd say that Buckle is a screaming buy getting pummeled for one month's lousy data. That's good news for Fools, since one of the best, most consistent long-term retail performers now trades at just 11 times earnings.

Patience is a virtue; caution is a defensive measure
As long as consumers are down in the dumps, worried about their jobs and mortgages while trying to pay down debt and save money, retail's going to struggle.

Some analysts have even suggested strange and unexpected explanations for the drag on retail sales. One theory states that folks taking advantage of the "cash for clunkers" government deal may be shopping less, because they now have car payments to make. (Chalk one up for believers in the unforeseen consequences of government economic programs.)

Whether you believe the economy's on the verge of recovery, or just think we're in the eye of the storm, things don't typically improve on Main Street until well after the end of a recession. Even if the overall economy shapes up, some retailers may still fall into bankruptcy as consumers balk at shopping. Your best strategy, therefore, is to avoid debt-laden retailers and long-struggling turnarounds, and go for healthier retailers like Buckle for the long term.

Nobody knows exactly when the retail sector will take a turn for the better, but I believe that it eventually will. When that brighter day arrives, the survivors should do very well, with less competition and more efficient operations. Alas, that hasn't happened yet.

How do you think these companies will fare over the next year or so? Head over to Motley Fool CAPS and give them a quick thumbs-up or thumbs-down. You can even write a brief pitch to explain your call. It's a fun, easy way to add to the wisdom of the Foolish CAPS crowd.

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