Yesterday's retail comps data for June continued to support a now-familiar theory: As the economy weakens, discounters like Wal-Mart are cleaning up.
Costco and Target also supported the theory in June. Of course, nobody's forgetting that the tax rebate checks continue to trickle into the economy, and many of them are obviously being directed into the cash registers of retailers like these.
The current good news is still about the discounters -- many higher-end and specialty retailers seem to be struggling. Luxury languishes, indeed. However, despite (or because of) all the bloodshed in the sector, investors should watch carefully for great long-term stock ideas.
Luxury limps, terrible teens
There's a reason people are starting to fear the terrible teens, too. My Foolish colleague Todd Wenning and I visited a local ghost town -- er, mall -- a couple weeks ago and were shocked by how empty Abercrombie & Fitch
Judging by the way most retail stocks are being trampled, you'd think June was all bad, but actually it wasn't. There were a few success stories other than the discounters. For example, Children's Place's
Things may be tough for many purveyors of youth culture and denim, but The Buckle's
Calm down and shop!
It seems as though a lot of economically battered investors have decided they want nothing to do with retail stocks. I get that. However, since retail stocks are getting slammed across the board -- in some cases, on no news whatsoever -- there are bargain opportunities for those who have the stomach to ride out the current pessimism.
For example, Aeropostale has been doing very well, despite beleaguered consumers, but that doesn't mean investors are psyched about it. Despite months of strong sales, the stock's down by about 4% today as I write this, all while the broader market tanks.
Then there's Motley Fool Hidden Gems pick Zumiez's nauseating plunge. A 33% share-price drop in two days seems extremely overdone, even though the company has fallen on tough times lately. And when that plunge is precipitated by a 3.4% drop in one month's comps, I suspect investors' reaction was more emotional than rational. If board sports remain popular, I'd say Zumiez looks pretty darn cheap trading at a mere 11 times forward earnings.
Even if consumers simply aren't shopping, with pessimism striking good and bad companies alike, investors should be. Look for quality companies with solid balance sheets and stellar brands that have fallen on temporary hard times. Those hard times just might look like great opportunities in retrospect.