Retail sales numbers for September are out and for the most part they were solid, if not exceptional. The 17 firms Thomson Reuters I/B/E/S tracks saw same-store sales rise 3.6%, meeting analysts' expectations. A year ago, same-store sales jumped 6.4%, prompting some to wonder about this year's holiday numbers. As we move toward the November 6 election date, experts expect retail sales to slow, followed by ramped up buying heading into Black Friday. Whatever happens, you can expect these three retailers to do well come the holidays.
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It's been on a roll for most of 2012, delivering same-store sales growth in six of the first nine months of the calendar year. In September its overall same-store sales increased 6%, 60 basis points higher than analyst expectations. Leading the way was its Old Navy discount brand where comps jumped 10% compared to a 1% decline in 2011. Old Navy North America has now delivered three consecutive months of double-digit comps. It's too early to know how Athleta is affecting its overall business, but watch for that brand to play a bigger role in the company moving forward. Hiring top talent in each of its divisions, this is a company on the move. Sure its international business is a mess, but now that the rest of the company is operating properly, you can expect CEO Glenn Murphy to spend more time getting it fixed.
TJX Companies (NYSE:TJX)
These guys are like a broken record. In the last 31 years they've achieved positive same-store sales growth on 29 occasions. You can't do much better than that. In September same-store sales were 6%, 160 basis points higher than analyst expectations and 390 basis points better than Target (NYSE:TGT). We can't compare their numbers to Walmart (NYSE:WMT), because it doesn't report monthly numbers. A big reason for its strong showing is TJX Europe, which saw its same-store sales rise 13%. As a result of all this good news it raised its adjusted third quarter guidance to 59 cents, give or take a penny. With the economy still very much on the mend, I expect a lot of gifts will be purchased at TJX stores come November.
The action sports retailer delivered same-store sales growth of 5.6% in September, 240 basis points higher than the consensus estimate; it projects third quarter comps of 3 to 5%, which is more than satisfactory in this market. I've been impressed with it for a long time. I first came to know Zumiez because I held stock in West 49, a Canadian action sports retailer, now owned by Billabong. In 2010, Zumiez debated whether it should also make a bid for the company. As a shareholder I was excited about the prospects of Zumiez taking over operations because West 49 had always been poorly run in my opinion. Wisely, Zumiez opted to open its own stores and now has 18, with many more on the way. FashionMag.com has a quote from Zumiez CEO Rick Brooks in its Q2 presentation discussing its acquisition of Blue Tomato that exemplifies how it operates its business: "We are looking at the long-term .... We know that there are opportunities, especially in the German and French markets, but the models are different from those we know in the United States. We need to really understand and analyze these markets." It's refreshing to hear a CEO admit he doesn't fully understand something. I continue to expect big things from Zumiez through the holidays and into fiscal 2013.
My extra suggestion is in the midst of a major turnaround; I'm talking about American Apparel (AMEX:APP), the controversial t-shirt manufacturer and retailer. I'd lost touch with the company after it began to have major financial troubles in 2010. It's battled back and is now profitable on an EBITDA basis with same-store sales numbers that are impressive, albeit on poor year-over-year comparisons. Flamboyant CEO Dov Charney leaves a lot to be desired as an executive but it appears the financial scare has brought a renewed commitment on his part to running a tighter ship. It still is a risky investment but worthy of consideration.
The Bottom Line
Gifts aren't the only thing you should be shopping for during the holiday months. There are some solid portfolio additions to be had in the retail sector, which has performed well in trying economic conditions.
At the time of writing, Will Ashworth did not own any shares in the companies listed in this article.