Another batch of retail earnings has confirmed one key idea - it's not impossible to do well in this environment. The men are being separated from the boys, so to speak.

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Taking a Dive
Wet Seal Inc.
(Nasdaq:WTSLA) apparently didn't do much right last quarter. With same store sales falling 12%, earnings per share fell from 10 cents last year to only 3 cents this year, though it was only 2 cents per share after one-time charges. Wall Street was looking for EPS of 3 cents though, after any charges. The company doesn't expect any major improve in Q3 either, looking for a 6% to 9% decline in same store revenue. Needless to say, the market didn't take it very well.

While a falling stock is a falling stock regardless of the reason, Wet Seal makes for a great market-psychology test subject. Investors have been lukewarm on WTSLA shares since May, even though the company has only posted one quarterly loss in the last ten (and none since the recession officially began in late 2007). And, trading at a multiple of 18.5, it's an expensive equity.

On the flipside, one of the other companies reviewed below has no profits in sight anytime soon, yet the market can go hog wild on "less bad" news.

Loosening The Belt
While there were a few retailing bright spots in the second quarter, Buckle Inc. (NYSE:BKE) was one of the brightest. Sales were up 14%; same store sales were up by 8.6%. Online sales, which were distinct from store sales, were higher by 39%. And yes, the company actually did something with the sales increases - earnings were up 12.1%. How'd The Buckle do it? It wasn't by cutting expenses like their competitors did; selling and admin expenses were up 19.7%.

If you've been following retailer results for Q2 at all, you'll likely agree the M.O. has been countering falling sales with cost cuts. Maybe, just maybe, those dwindling sales other retailers are suffering are ultimately the result of extreme (detrimental) cost cutting. It's worth a thought anyway. The Buckle's second-quarter results also send another message that puts egg on the face of competing retailers: if you give customers what they really want, sales and earnings will improve, even in a cruddy economic environment.

Old Reliable
Better margins aren't enough to increase earnings if sales are even modestly lower. Gap Inc. (NYSE:GPS) found that out last quarter, along with so many of its competitors. Nevertheless, the fact that Gap's income fell only about 0.5% while same store sales were lower by 8%. Sales at all three of its divisions - Banana Republic, Gap and Old Navy - were modestly lower last quarter.

Though Gap's numbers are stuck somewhere between 'boring' and 'unconvincing', it's also worth mentioning that the company never even came close to taking a loss during the recession. There's a lot to be said for reliability.

Stretched Thin?
The glass could be half full or half empty for Zumiez, Inc. (Nasdaw:ZUMZ). The sport retailer lost 10 cents per share last quarter (or only 7 cents, taking out a one-time charge). That's worse than Q2 of 2008's 9 cent per share profit, but better than the 12 cent loss analysts were looking for. Sales were down 8%.

Zumies is something of an enigma. The company acknowledges that the third quarter's top line will be lower, by double-digits in fact. Yet, the retailer is also planning to open 36 new stores this year despite not feeling totally comfortable with consumer spending trends.

Investors have been in a ZUMZ-buying mood lately, but the interest may be a little early. If the analysts are right about the EPS of 32 cents in 2010, the forward-looking price multiple of 42 is hardly attractive.

A Daring Raise
I'll say this much for Bon-Ton Stores Inc.'s (Nasdaq:BONT) management - they've got guts. Despite a loss during the second quarter, company officials raised its full-year outlook.

This year's Q2 loss of $2.04 per share was only 3 cents worse than the loss taken in the same quarter a year earlier - a relative victory considering same store sales were lower by 9.8%. Take the raised guidance with a grain of salt though; rather than the originally expected loss between $3.40 and 4.30 per share, the company now 'only' expects to lose between $2.50 and $3.70. Even with the impending loss (this year and next), investors loved the revision and sent the stock soaring by 29% to $5.23.

Nobody loves a turn-around story more than I, but this isn't one that merits a 29% bounce, or even a 29 cent bounce. The company is on track for an EPS loss this year and next year; that's about half the share's current value. (For more, see Strategies For Quarterly Earnings Season.)

The Bottom Line
It's not easy these days to be a retailer, and although the trend is to cut costs, ultimately sales must go up for outlooks to improve. There is only so much fat that can be cut.

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Tickers in this Article: WTSLA, BKE, GPS, ZUMZ, BONT

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