The holiday numbers are in, and many retailers are smiling. Some are even raising their outlooks to account for the better-than-expected same-store sales they experienced in December. Looking at the overall picture for retailers, we found out today that sales at stores open at least one year — a key metric when assessing the health of retailers — rose 2.9%. That aggregate number was much better than the consensus Street estimate of 2%.
So, does this mean you should move into the entire retail sector indiscriminately? Absolutely not. A much better strategy is to identify the hottest retailers with same-store sales that are on the move.
So, with this thesis in hand, here are five hot retail stocks poised to continue performing in 2010.
Retail Stock #1 – Aeropostale (ARO)
Aeropostale (ARO) had a stellar month — same-store sales were up 10% in December, much better than the consensus estimate of an increase of just 3%.
The strong same-store sales showing prompted the company to boost its guidance for the fourth quarter to a range of $1.33 to $1.34 per share, up from previous estimates of $1.20 to $1.24. Aeropostale is one of the specialty fashion retailers hitting the mark with the fickle teen and tween fashion market, and as long as they keep up their cool factor with this demographic, we’re likely to see more impressive same-store sales figures.
Retail Stock #2 – Nordstrom (JWN)
Upscale department store Nordstrom (JWN) enjoyed a very good December, with same-store sales climbing 7.4%, nearly tripling the consensus analyst estimate for same-store sales of just 2.5%. It seems the analysts grossly underestimated the desire for the consumer to spend money, and their proclivity to spend money at high-end luxury department stores.
What we’re seeing here is more evidence that luxury retailers are back, and back in a big way. Sure, there still are plenty of cost-conscious shoppers out there. However, December’s same-store sales numbers for JWN clearly tell us that there also are plenty of shoppers who will to open their wallets for higher-priced goods served up with an upscale experience.
Retail Stock #3 – Ross Stores (ROST)
In contrast to Nordstrom and Saks, there is discount fashion retailer Ross Stores (ROST). The company had a most-impressive 12% gain in December same-store sales, a number that was far north of the 6.9% consensus forecast Wall Street had anticipated. Based on ROST’s better-than-expected sales, and also its healthy margins, the company raised its fourth-quarter earnings per share forecast to a range of $1.14 to $1.16, a 50% to 53% increase over the same period last year.
Here we see that bargain shoppers are indeed alive and well, despite the nation’s high unemployment rate, and despite an economic slump that continues to depress many parts of the country. Interestingly, Ross said stores in the Southeast and Northwest regions performed best, indicating that the bargain hunters are out in force in these catty-corner markets.
Retail Stock #4 – TJX Companies (TJX)
Like its rival Ross, both of TJX Companies’ (TJX) discount stores — TJ Maxx and Marshalls — combined to give the parent firm an excellent same-store sales showing. For December, TJX saw an increase of 14% in the metric over the same period a year ago. That increase resoundingly beat Street estimates for an increase of 5.6% in stores open at least one year.
Like several of our hot retail stocks for 2010, TJX raised its fourth-quarter earnings guidance as a result of the news. The company now says its fiscal Q4 EPS will be in the range of 82 cents to 84 cents, which represents an increase of 41% to 45% over the same period a year ago. The company also said it believes the consumer will remain focused on value even as the economy improves.
Retail Stock #5 – Saks (SKS)
While it is undoubtedly true that a segment of consumers will remain focused on value even as the economy improves, it also is true that those who can afford to shop at higher-end stores aren’t going to hesitate to do so the way they did last year. Benefiting from this trend is our final hot retail stock for 2010, Saks (SKS).
The company really hit the mark in December, posting same-store sales of 9.9% for the month. The Street was only expecting same-store sales to climb 2.8%. Saks’ management took steps to make sure inventory levels weren’t very high this season, but most retailers did that this year to avoid being stuck with merchandise they had to blow out after Christmas. Interestingly, the snooty retailer also introduced less-costly merchandise into its holiday mix. So, will this mix of high-end luxury goods and less-costly merchandise be a winning retail formula in 2010? It looks like we’ll find out as the year unfolds.
