Winners and Losers are Clear Again in September Retail Sales Results

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With GDP growth mediocre at best, employment and wages still weak, and a generally tight consumer marketplace, we saw another month of the zero-sum game that results from weak spending growth. Let’s dig into the month’s winners and losers.


As has become the standard, Nordstrom (NYSE: JWN) reported strong same-store sales growth, with September coming in at 4.4% year-over-year. Though this number was slightly weaker than consensus expectations, total sales still grew 7.4% and eclipsed $1 billion. Yet again, Nordstrom Rack outpaced Nordstrom stores, reporting 6.9% same-store sales growth versus 4% at the flagship stores. We expect this long-term trend to continue, though we see a strong possibility for flagships to outperform Rack in times of very robust expansion.

We really can’t say anything negative about Nordstrom, as its execution year-to-date has been nearly flawless, and the firm outlined a plan to aggressively expand its Rack format. However, we believe shares are fairly valued at this juncture.


Investors have been falling back in love with the Gap (NYSE: GPS) through the course of 2012, as the retailer’s stock performance has been nothing short of fantastic. The trend continued in September, as same-store sales surged 6% on a company-wide level thanks to 5% growth at Gap, 4% at the Banana Republic, 10% at Old Navy, and 3% growth internationally. However, we noticed that the store was highly promotional during September, and stores we visited (though a small sample set) seemed like they needed to clear significant summer apparel. We’re not sure if the company will see much gross margin expansion during the third quarter.

Gap continues to bet on the correct fashion choices, and we were even more encouraged to hear that the former merchandising director is starting at Old Navy, which should help steer that segment in the right direction. We like management and the company’s execution, but we think shares are fairly valued. As such, we’re not interested in adding the name to the portfolio of our Best Ideas Newsletter.

Limited Brands

Limited Brands (NYSE: LTD), owner of cash-cow Victoria’s Secret, posted solid same-store sales numbers for September. Aggregate same-store sales increased 5% year-over-year, driven by 6% same-store sales growth at Victoria’s Secret, 5% at Bath and Body Works, and 5% growth at its Limited Brand stores (encompassing all units, including Henri Bendel). Sales at La Senza fell 4%, but the segment is much smaller than any other, so it is fairly immaterial to the company’s results.

We admire The Limited for being one of the few clothing retailers to create a robust online model thanks to Victoria’s Secret consistency in product and fit. The company has proactively prevented itself from getting “Amazon’d," and we continue to like the long-term profile of its brand portfolio. Regardless, we believe shares are fairly valued.


We were very skeptical of Zumiez’s claim that its back-to-school sales were clustered in September, but the retailer posted same-store sales growth of 5.6% (on top of a 10.1% growth rate during the same period in 2011). Unlike teen retailers like Abercrombie & Fitch, which have been selling essentially the same products for ten years, Zumiez tends to bring new apparel to market rather quickly and capitalizes on creating partnerships with fast-growing brands. Shares have drifted toward the low end of our fair value range, but we’re not fans of betting on the fickle teen consumer, so we won’t be adding shares to our Best Ideas Newsletter anytime soon.

TJX Companies and Ross Stores

The TJX Companies (NYSE: TJX), commonly referred to as TJ Maxx, reported another stellar month, with aggregate same-store sales accelerating 6% and total sales growing 10%. Marmaxx (Marshall’s and TJ Maxx) posts 6% comparable sales growth, and TJ Maxx Europe even saw 13% same-store sales expansion. We’ve outlined many times before why we’re huge fans of the firm’s value offering, and September results reinforce our conviction.

Ross Stores also posted strong same-store sales gains of 5%, higher than consensus expectations. Ross Stores’ business model is quite similar to that of TJX, though there tends to be slight differences in product mix and pricing. Nevertheless, the long-term trend is the firm’s friend (at least for now).

At current levels, we think both companies are fairly priced, though we remain huge fans of the long-term potential of each business.


So far it seems like every retailer has beat expectations, but we think that was far from the case. Companies that likely saw sluggish growth like J.C. Penney and Sears don’t report monthly sales figures. However, comparable retailer Kohl’s (NYSE: KSS) still does, and its results were not great. Though the company didn’t lower its earnings guidance, September same-store sales fell 2.7% and total sales fell 1.4%.

We think Kohl’s faces an uphill battle, especially with its core consumers struggling and younger generations turning away from the department store to similarly-priced fast-fashion competitors. While the firm has been a cash cow during the past several years, we simply aren’t confident about the company’s future trajectory.

Still, Kohl’s should benefit from structural changes at J.C. Penney and weak competition from Sears, and we think it could easily outlast the two—barring a change in consumer’s perception of Penney’s new business model. We think shares are fairly valued.


Macy’s same-store sales were also a bit weaker than expected, coming in at 2.5% versus consensus expectations of 3.3%. We think the Street overestimated customer migrations from J.C. Penney, but we don’t believe the number was too disappointing. Online sales surged 39% in September, and we think the company has done an excellent job navigating the new retail environment. Shares only score a 6 on the Valuentum Buying Index (our stock-selection methodology), so we’re not that interested in the retailer at this time.

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