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Tickers in this Article: KSS, JCP, M, ROST, JWN
There is a lot of talk about "green shoots" in the economy along with elements of encouraging, or at least less discouraging, news and the stock market did show good gains in the just-ended second quarter. So as some of the sectors that have been less depressed seem to be pulling out of the mess, what of retail? (For a refresher, check out our Industry Handbook: The Retailing Industry.)

The Well-Known Demise of the Consumer
When the bottom dropped out of the economy in the fall of 2008, one of the most notable seismic effects was that consumer spending simply fell off the cliff. Consumers worried about the severity of the recession, worried about losing their jobs, their houses and were in the process of having the valuations of whatever assets they owned severely shaved down, if not melted.

Retailers felt the brunt of this, as consumers suddenly stopped buying. Retailers' earnings reflected this and it's been a slow, agonizing comeback which is still going on.

Hopes Knocked Down
With consumer confidence up in April and May, there was hope for the return of the consumer to the stores. Still, this new confidence didn't reach the bottom line for most retailers. Mid-level department store Kohl's (NYSE: KSS) saw its first-quarter profits fall by 11%. Macy's, (NYSE: M), even with this supposedly more confident consumer, is already seeing a slackening in sales from May which should lead to continuing lackluster earnings.

JCPenney's (NYSE: JCP) same store sales were off more than 8% in May, and continue to struggle. Luxury fared no better, as Nordstrom (NYSE: JWN) reported plummeting same store sales in May, down over 13% from last year's May sales. One bright spot was when value discounter Ross Stores (Nasdaq: ROST), which continues to shine, reported a relatively robust 4% increase in same store sales for May, and a 10% increase overall.

No Tailwind, No Slipstream
Just as the retail picture appeared to be getting better, the economic headwinds blew in, questioning whether the economic recovery will even be in place by the end of the year. Still, there are tentative positives, even for some of the retailers.

Kohl's has been firming up market share and grinding through the recession much better than some of the other large department store retailers. While its earnings estimates project a drop-off for the full year 2009 compared with 2008, the numbers are not bad considering the economic climate, and it looks like Kohl's will rebound in 2010. Also, Ross Stores, which has done exceptionally well by continuing to grow earnings through the recession, has made the most of their value approach and should continue to have success.

The Long Retail Haul
For Kohl's, keep looking at the stock for the long haul and monitor its stock price in comparison to sales and earnings, which is another way of saying you might want to wait for some better tangible data before jumping in. Ross Stores is another candidate for investment, though its success is pretty much priced into its stock price already, but watch for pull backs as a buying opportunity.

The key on Kohl's is that it has relatively outperformed the businesses of many of its competitors during the recession, and should be positioned to grow once the recovery begins. Then you might want to consider buying, but ease in. (For more, see Analyzing Retail Stocks.)

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