CMRG, TLB, FLWS: Retail Stocks amid Earnings Updates

Retail is such an important part of not just equity markets but also of any economy, that avoiding this sector is a sure shot way of losing nerve of the market. At the same time, it is one of the sectors with marred prospects, value traps and a lot of unmet promises. As retail giants brace for earnings announcements, investors need to tread carefully. Smaller but specialized retailers such as Casual Male Retail Group Inc (NASDAQ: CMRG), The Talbots Inc (NYSE: TLB) and 1-800-FLOWERS.COM Inc (NASDAQ: FLWS) present an opportunity to benefit from the portfolio reshuffle and resulting demand. 

JC Penney turned a new leaf, reported a quarterly loss for the third quarter. The department store’s results were negatively impacted by higher restructuring costs and lower sales. The stock trended lower on Monday as the retailer also lowered its earnings outlook for the rest of the year. During last week, Ralph Lauren also reported earnings, beating street estimates on most counts. Among other notable retailers that reported quarterly numbers included Macy's Inc, Kohl's Corp and Nordstrom Inc. 

Quarter after quarter, earnings announcements from retailers have underscored a couple of trends. One is that the way ahead is more painful for retailers trying to make money from supply chain efficiencies alone. Second visible trend in retailers’ earnings is the high coefficient of margins with a specialized approach be it specialty retailing or a different mode of connecting to customers.

In this regard, Casual Male Retail Group Inc (NASDAQ: CMRG) comes across as a perfect example. The company, a specialty retailer of big and tall men’s apparel, not only successfully defended its margins but also managed to expand them in the previous quarter. This is really remarkable as many of its comparable peers are struggling on overhead costs. The stock is expected to remain range bound till the company reports its third quarter earnings later this week. The stock currently trades at $4.04.

Generally solid retail sales results in recent months indicate that top line growth is not difficult to come by and it usually becomes a matter of specific company’s cost control if the sales growth gets translated into profits or not. Considering past quarterly earnings, The Talbots Inc (NYSE: TLB) and 1-800-FLOWERS.COM Inc (NASDAQ: FLWS) look a little doubtful on their internal cost control measures. On a positive note, current market prices of $2.5 and $2.7 respectively are already low so the downside is not steep.