Retail stocks started the year on a strong note as the S&P
Retail index outperformed the Dow and S&P 500 and jumped over
18% during the first quarter.
However, sales slowed down in May, reflecting a shift in
consumers’ shopping patterns. Consumers are gradually becoming more
rational on what they spend and how much they spend. These days,
shoppers are spending more on essentials and are looking for
value-adds.
Across all income levels, shoppers are ranking value-for-price
as the most important reason for store choices. Thus, the retailers
are offering trend-right and well-designed assortments at
compelling prices, without compromising on quality in order to
drive traffic.
According to the National Retail Federation, “May retail sales
(excluding automobile, gas stations and restaurants) declined 0.3%
seasonally adjusted from April.” However, unadjusted sales
increased 4.8% year over year.
The U.S. Department of Commerce noted that “advance estimates of
U.S. retail and food services sales for May, adjusted for seasonal
variation and holiday and trading-day differences, but not for
price changes, decreased 0.2% (±0.5%) from the previous month.”
However, sales marked an increase of 5.3% year over year.
Coming Down to Companies
Retail, owing to its huge spectrum, remains a lucrative avenue
for investors. Moreover, the sector also reflects consumer spending
trends, an important parameter to gauge the health of the economy
(consumer spending accounts for approximately 2/3rd of
the economy).
Thus, considering comparable store sales data becomes quite
important as it is an essential indicator of the health of the
retailers, providing an insight into future prospects.
Costco Wholesale Corporation (COST) registered
growth of 4% in comparable store sales for the four-week period
ended May 27, 2012, while the company’s top line increased 7% to
$7.7 billion. A differentiated product range enables Costco to
provide an upscale shopping experience to its members, resulting in
market share gains and higher sales per square foot.
Moreover, the company maintains a healthy membership renewal
rate. Costco also remains committed to open new clubs in domestic
and international markets. The company’s diversification strategy
is a natural hedge against risks that may arise in specific
markets. Currently, Costco holds a Zacks #3 Rank that
translates into a short-term Hold rating.
Macy's Inc. (M) reported
same-store sales growth of 4.2%. Total sales were up 4.1% to $2.02
billion. Macy’s has been taking prudent steps to increase sales,
profitability and cash flows. These include integration of
operations, consolidation of divisions and customer-centric
localization initiatives.
To help drive traffic, Macy’s continues to focus on price
optimization, inventory management and merchandise planning. Macy’s
carries a Zacks #3 Rank that translates into a short-term Hold
rating.
Nordstrom Inc (JWN) registered a 5.3% increase
in same-store sales for May 2012. Total retail sales were $870
million, up 9.3% from $796 million in May2011. Nordstrom maintains
a Zacks #3 Rank, which translates into a short-term Hold
rating.
Ross Stores Inc. (ROST), the largest off-price
apparel and home fashion chain in the U.S., marked an 8% increase
in same-store sales in May 2012. Total sales for the four-week
period surged 13% to $746 million. The robust sales mirror the
company’s relentless focus on offering exciting merchandise driving
value-oriented customers. Ross' shares maintain a Zacks #3 Rank,
which translates into a short-term Hold rating.
Target Corporation (TGT) marked an increase of
4.4% in comparable store sales for May 2012. Net retail sales rose
5% year over year to $5.04 billion. Target’s efficient marketing,
multi-channel strategy, product innovation, compelling pricing
strategy and new merchandise assortments, will drive
comparable-store sales and operating margins in the long term.
We expect the company to gain market share, and believe that
more focus on consumable items should boost sales and earnings in a
sluggish environment. Currently, Target holds a Zacks #3 Rank,
which translates into a short-term Hold recommendation.
Limited Brands Inc. (LTD) posted a 6% increase
in comparable-store sales for May 2012. However, net sales declined
6.3% to $671.9 million for the period. Limited Brands wants to
augment its retail footprint across the globe by expanding
aggressively in Canada and other international markets.
The company’s strong liquidity positions it for growth and
higher returns. However, stiff competition and erratic consumer
behavior remain matters of concern. Limited Brands holds a Zacks #3
Rank that translates into a short-term Hold rating.
Gap Inc. (GPS) reported a 2% increase in
same-store sales, a significant recovery from the prior-year
quarter. The company posted a 4% increase in net sales for the
period. Gap holds a Zacks #3 Rank that translates into a short-term
Hold rating.
Saks Inc. (SKS) reported comparable
store sales increase of 4.0% in May, with total sales for the four
weeks ended May 26, 2012 climbing 3.7% to $215.8 million. Saks
currently carries a Zacks #4 Rank (short-term Sell rating),
reflecting risks related to the ever-changing demands of the
consumers, increased volatility in the financial markets and the
overall uncertainty in the macroeconomic environment.
Kohl's Corp. (KSS) announced that the company’s
comparable-store sales for May 2012 decreased 4.2% with total sales
declining 2.6% to $1.3 billion. Kohl’s holds a Zacks #3 Rank that
translates into a short-term Hold rating.
COSTCO WHOLE CP (COST): Free Stock Analysis Report
GAP INC (GPS): Free Stock Analysis Report
NORDSTROM INC (JWN): Free Stock Analysis Report
KOHLS CORP (KSS): Free Stock Analysis Report
LIMITED BRANDS (LTD): Free Stock Analysis Report
MACYS INC (M): Free Stock Analysis Report
ROSS STORES (ROST): Free Stock Analysis Report
SAKS INC (SKS): Free Stock Analysis Report
TARGET CORP (TGT): Free Stock Analysis Report
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