News headlines earlier this week spread the grim news that consumer confidence fell in July. Today's lackluster July retail comps figures simply give added color to the ugly state of affairs in the economy.
Overall retail sales in July rose 2.9%, missing analysts' expectations for a 3.1% increase. The comparison is easy, too; last July, overall retail sales plunged 5.1%. Last month, comps rose, but owed a lot of the increase to retailers' desperate price-cutting to drive sales.
The fireworks fizzle
Let's take a look at a few of the retailers' sales figures:
|
Company |
July Comps |
July Net Sales |
|---|---|---|
|
Costco |
6% |
8% |
|
Gap |
1% |
3% |
|
Abercrombie & Fitch |
7% |
17% |
|
Buckle |
(9.3%) |
(3.9%) |
|
Macy's |
7.3% |
11% |
|
Aeropostale |
1% |
6% |
|
American Eagle Outfitters |
N/A |
2% |
*All data from company press releases.
The data suggests that some of the retailers with comps that looked "best" enjoyed the easiest comparisons to the previous periods. (In other words, they stunk badly last year.)
For example, Gap's comps plunged 8% last July. In addition, its second-quarter profit estimate missed expectations, suggesting that the retailer staged aggressive markdowns to move merchandise. Abercrombie's solidly in that boat, too; last July, its comps plunged 28%. American Eagle's own desperate promotions, which ran from July 21 through Aug. 3, didn't seem to help much. AE's July same-store sales were flat, compared to an 11% drop this time last year.
Conversely, some of the retailers viewed with the most trepidation today generated the best comps over the past two difficult years. Investors should consider Buckle and Aeropostale good contrarian plays at the moment, weighing short-term concerns against evidence of their long-term business strength. I'd rather pay nine times forward earnings for Aeropostale or Buckle than 15 times forward earnings for long-struggling Abercrombie.
Can the celebration
Same-store sales data day is dangerous for those investors who get too caught up in short-term euphoria (or pessimism) about specific retail stocks. It's just one month's data, and it needs to be weighed against historical data and factors like brand strength and consumer confidence. It's just one piece of the puzzle -- not even close to the whole picture.
As always, long-term investors should take a deep breath and carefully gauge these stocks before doing any rash buying or selling.
