October Retail Roundup

RJ is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

During October, the US consumer remained resilient while much of corporate America stagnated in anticipation of the presidential election and the looming fiscal cliff. Let’s take a look at retail sales results for the month.

Nordstrom

Nordstrom (NYSE: JWN) continues to be a standout performer in the luxury retail space, with October same-store sales surging 9.8% year-over-year. Nordstrom Rack continued to outperform the traditional stores, growing 10.5% year-over-year compared to 10.2% for traditional stores. We remain huge supporters of the firm’s expansion plans, and we believe its execution is unbeatable in the retailer industry. Nevertheless, we believe shares are fairly valued.

Gap

Gap’s October results weren’t quite as strong as September results, with same-store sales climbing 4% on a company-wide basis, versus a 6% growth rate last month. Gap, Old Navy, and Banana Republic North America grew 6%, 5%, and 5%, respectively, reflecting the firm’s ability to keep hitting on fashion trends throughout 2012. Though Old Navy decelerated slightly from September, we remain very bullish on the brand’s potential with new leadership running the show. International results, however, were weak yet again, falling 2% year-over-year during the month.

Gap also mentioned that its third quarter earnings will be in the range of $0.61-$0.63 per share, a healthy increase of 60% compared to the same period last year. Somehow lost in the post-Sandy shuffle was the fact that this figure handily exceeded consensus estimates of $0.49 per share. Regardless, we believe shares are fairly valued, which wouldn’t make them very attractive for addition to our Best Ideas Newsletter.

Kohl’s

Kohl’s (NYSE: KSS) reported surprising strength in October, with same-store sales growing 3.3% year-over-year on top of a 4% gain last year. Kohl’s has struggled mightily to keep pace with competition, but as we’ve said numerous times, J.C. Penney’s (click ticker for report: JCP) new retail strategy seems to be alienating bargain hunters, sending them back to Kohl’s. The firm specifically cited strength in the Midwest as one of the major drivers of the better results, which is consistent with the region’s auto and manufacturing recovery.

Still, we think Kohl’s has serious competition gunning to steal sales during the holiday season, and we’re not sure how well the company will hold up. Further, third quarter same-store sales still fell 0.5%, so this month could be an aberration. We don’t find shares that attractive at current levels.

Zumiez

Zumiez October results exemplified why we don’t invest in teen retailers. After same-store sales increased 5.6% during September, growth slowed to 0.6% during October. The firm also slashed its earnings guidance to $0.36-$0.39 per share, from its previous outlook of $0.42-$0.45 per share. Management blamed Europe, but we suspect the fickle US teen might be shopping elsewhere this winter. Though shares have fallen below the low end our fair value range, the company’s business is too volatile for our taste; thus it won’t warrant a position in our Best Ideas Newsletter.

Macy’s

Macy’s (NYSE: M) October results were fantastic, with same-store sales growing 4.1% year-over-year. Though the company expects to lose some sales in the beginning of the fourth quarter due to Hurricane Sandy, it thinks the rest of the quarter will compensate for temporary store closings and sales declines. Online sales during the month surged 45% year-over-year, as the company continues to transition its business model better than almost any other retailer. We’re fans of Macy’s execution, but shares remain fairly valued at current levels.

Target

Target’s (NYSE: TGT) October same-store sales grew just 2.4% year-over-year, though it believes the fourth quarter will be incredibly strong. Traffic was basically flat, and total sales grew just 3% year-over-year to $4.9 billion. We aren’t too worried about this small blip, and we think Target will continue to benefit from consumers trading up from deep-discounting dollar stores. The company also divested its troublesome credit unit, which will add $0.15 per share in earnings during the fourth quarter. Nevertheless, shares look fairly priced.

Limited Brands

Growth finally stalled a bit at Limited Brands’ Victoria’s Secret. Same-store sales grew 3% year-over-year in October at the underwear giant, while company-wide same-store sales growth also came in at 3%. We don’t take too much stock in the number, especially since Victoria’s Secret has experienced excellent same-store sales growth so far this year. Shares continue to trade within our fair value range, so we aren’t interested in the company at this time.

TJX Companies and Ross Stores

Once again, TJX Companies (NYSE: TJX) posted fantastic results. October same-store sales increased 7% year-over-year, driven by an 11% comparable store sales increase from TJX Europe. Consumers continue to love the brand-name value proposition, which we think is a long-term trend in retail. Though the firm expects solid full-year earnings of $2.44-$2.47 per share, higher than its previous guidance range, we believe shares are fairly valued at this juncture.

On the other hand, Ross Stores' growth slowed slightly during October, with same-store sales expanding 4% year-over-year. The firm also raised its earnings guidance, but only by a penny to the range of $0.71-$0.72 per share. Shares have been pummeled today, and finally trade within our fair value range. The firm scores a 4 on the Valuentum Buying Index (our stock-selection methodology), so we’re not big fans of the firm’s return prospects at this time.


Valuentum has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Gap. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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