The 2 Faces of Retailing

The market loves surprises and hates disappointments.

David Meier
David Meier
Jan 4, 2007 at 12:00AM
Other

To kick off the new year (and Happy New Year to everyone), retailers are reporting their December sales info. Looking at the big gainers and losers in the markets today, I'm struck with the feeling that some retailers have it and some don't.

Since I like to end things on a positive note, we'll start with the decliners first.

Hot Topic (NASDAQ:HOTT), bebe stores (NASDAQ:BEBE), and Limited Group (NYSE:LTD) are getting hammered today, and expectations seem to be the culprit.

Hot Topic saw December revenue fall 1% and comps drop 5%. But when you decrease earnings guidance 40% (from an average of $0.35 to and average of $0.21), the market isn't going to react kindly.

bebe put up some sexy numbers to go along with its fashionable styles, but it, too, dropped its expectations (from a range of $0.31-$0.35 to $0.25-$0.29) for the second quarter. Management commented that sales have started to slow, and the company is using higher-than-anticipated promotions and markdowns.

Victoria continues to pull her weight at Limited Group, but apparently she didn't meet management's expectations. Victoria's Secret saw comp sales increase 10%, but that wasn't enough. Bath & Body Works also "disappointed" with a 5% increase in same-store sales. But the 7% drop in December comps in the apparel divisions was the true boat anchor.

On the plus side, I see Aeropostale (NYSE:ARO), New York & Co. (NYSE:NWY), Abercrombie & Fitch (NYSE:ANF), and Gymboree (NASDAQ:GYMB) are all up today. Checking their sales releases, I see some common threads, and none of them is really very surprising: Lots of things moved in a positive direction.

Aeropostale posted higher sales and same-store sales. But perhaps more importantly, it sees continued performance and raised its guidance by $0.02. New York & Co. also saw both types of sales increases, which is certainly comforting information, considering the ups and downs it's had over the past year. It also said transactions increased, which is yet another good sign.

Abercrombie's results were a bit confounding. Sales were up, but overall, same-store sales were down 1%. Its flagships stores struggled (comps fell 6%), but its other concepts continue to hum right along. And with Concept 5 right around the corner, perhaps there's more to be excited about in the future.


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The Gymboree clown has to be smiling from ear to ear, given its results. Sales growth is through the roof (22% overall and 15% in same-store sales in December), and, you guessed it, earnings expectations were updated.

Today reminds me why I think retailers can be lucrative investments under the right circumstances. If you can buy them when times are tough and hold them when times are good, you'll be rewarded. Aeropostale and Gymboree are great examples; both have risen sharply from their lows as their performance improved. Others haven't been so fortunate in dealing with the two faces of retailing.

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Retail editor and Inside Value team member David Meier does not own shares in any of the companies mentioned. You can view his profile here. The Fool takes its disclosure policy very seriously.