The retail sector
showed some strong spending in January, which could bode well for the
remainder of the year, given the improved jobs growth, higher home
prices and property wealth, and the aversion of higher taxes for those
individuals earning less than $400,000 per year.
The Thomson Reuters Same Store Sales
Index (comprising 18 U.S. retail chains) increased a
better-than-expected 5.8% in January, beating the 3.5% estimate and the
4.4% advance in January 2012. The news is good for the retail sector in
The SPDR S&P Retail Index shows a
steady uptrend since its sharp decline in August 2011, highlighted by an
ascending triangle and a break above the horizontal resistance line.
The strong relative strength and moving average convergence/divergence
indicator are flashing a “buy,” based on my technical analysis.
Chart courtesy of www.StockCharts.com
The chart shows the retail sector is likely headed for higher gains.
The big winners in January were diverse,
but the major department stores in the retail sector reported some
excellent results that blew away Wall Street estimates.
Macys, Inc. (NYSE/M) reported a stellar
11.7% surge in its January same-store sales, well above the average five
percent estimate, based on Retail Metrics Inc. (Source: Townsend, M.,
“Macy’s Leads Biggest Same-Store Sales Gain Since 2011,” Bloomberg,
February 7, 2013.)
Kohls Corporation (NYSE/KSS) was equally
impressive, with a 13.3% increase in same-store sales, well above the
3.1% Thomson Reuters estimate.
Nordstrom, Inc. (NYSE/JWN) saw same-store sales surge 11.4% in January.
The Gap, Inc. (NYSE/GPS), which was
struggling years ago, is now well on its way to retail stardom,
reporting same-store sales growth of eight percent in January, well
above the four percent Thomson Reuters estimate.
In the high-end retail sector market, luxury retailers continue to stall on lower spending on high-priced items. (Read “Luxury Stocks That Are Leading the Pack.”)
Coach, Inc. (NYSE/COH) is struggling with sales and has fallen to its
52-week low. The top luxury retailer continues to be Michael Kors
Holdings Limited (NYSE/KORS), which is nearing its 52-week high, while
Tiffany & Co. (NYSE/TIF) attempts to rally. All three companies are
also plays in China’s retail sector, where brand buying is significant
On the other, lower end of the retail
sector spectrum, discount stores, such as Dollar General Corporation
(NYSE/DG), Dollar Tree, Inc. (NASDAQ/DLTR), Family Dollar Stores, Inc.
(NYSE/FDO), and Wal-Mart Stores, Inc. (NYSE/WMT,) are continuing to
deliver some good results, as consumers continue to search for the best
prices, which was a popular sentiment with the recession.
On the smaller side, PriceSmart, Inc.
(NASDAQ/PSMT) is worth a look in the retail sector, having already
returned some impressive gains.
In the growing global jeans market,
including China and India, American Eagle Outfitters, Inc. (NYSE/AEO) is
near its 52-week high. An up-and-coming maker of jeans in both the
lower- and high-end space, True Religion Apparel, Inc. (NASDAQ/TRLG) is
an interesting play. The stock is quickly approaching its 52-week high
of $30.66 after reporting strong sales growth of 15% year-over-year in
the fourth quarter, easily beating Thomson Financial estimates.
The key to stock market success in the
retail sector is to search for a company that offers some sort of niche
or a product that differentiates it from its competitors. I also like to
look at retailers that may be currently in the dumps with investors,
but that have strong brand awareness. J. C. Penney Company, Inc.
(NYSE/JCP) is a price example in the retail sector. read more news.