For Immediate Release
Chicago, IL – October 15, 2009 – Zacks.com releases the latest Zacks Industry Rank. Stocks featured in this week’s analysis include Limited Brands (LTD), Kohl’s (KSS), Target (TGT), Ross Stores (ROST) and TJX Companies (TJX).
Zacks Industry Rank Analysis is written by Charles Rotblut, CFA, Senior Market Analyst for Zacks.com.
This week: Retailers’ Registers Are Ringing
Consumers are showing a willingness to spend, even as they watch their budgets.
On Wednesday, the Commerce Department said that retailers saw sales rose 0.5% last month, excluding motor vehicles and parts. Furniture & home furnishing stores, health & personal care stores, general merchandise stores and gasoline stations all saw increases of 0.8% or better.
(The hangover from the Cash for Clunkers program resulted in an 11.8% drop in sales at auto dealers. This skewed the overall change in retail sales down to -1.5%.)
The increase may seem surprising given the economic backdrop. After all, unemployment is rising towards 10% and another wave of foreclosures could be forthcoming as adjustable rate mortgages reset. On the other hand, the majority of Americans are employed and the improving economic data is probably giving consumers some confidence, even if the sentiment surveys are less clear.
Plus, the Commerce Department’s data is backed up by rising sales at several retailers. For instance, Limited Brands (LTD), Kohl’s (KSS) and Target (TGT) saw an improvement last month.
Of course, some of the biggest increases continue to occur at the discount retail chains. Ross Stores (ROST) and TJX Companies (TJX) both said September same-store sales jumped by 7% or more.
Sales Benefiting From Several Factors
There was no single key driver to explain the improvement in sales. Traffic was better and Target noted that the average transaction continues to improve. Executives at a warehouse a large warehouse chain observed that though coupon use has increased, consumers are still spending essentially the same amount of the register.
Unseasonably cool weather may have also played a role. TJX saw increased demand for fall apparel. The good weather across much of the country may have also given people reason to go out and shop. Not to mention that the calm hurricane season probably helped stores in the Southeast.
Again, the economy is also playing a role. With business conditions stabilizing, consumers are more willing to open their wallets. Though spending patterns will remain comparatively depressed well into 2010, and probably longer, even relatively small increases can make a difference in the data.
Retail Remains A Top Sector
Despite rising unemployment, Retail has been among the top-ranked sectors for many months. Several retailers have been able to top analyst expectations, resulting in positive earnings estimate revisions.
Last week, several companies raised their third-quarter guidance, including KSS, ROST, TJX and TGT. Though LTD did not provide any guidance, 10 out of the 15 covering analysts raised their third-quarter projections. The full year Zacks Consensus Estimate has recently been raised on all 5 companies.
There is no doubt that retailers still face challenging conditions. The National Retail Federation expects holiday shoppers to spend 1% less this year than last year. However, as long as retailers continue to perform better than expectations, their stocks should continue to rise.
Zacks Rank and Industry Classification
ROST, TGT and TJX are Zacks #1 Rank (“strong buy”) stocks and are classified in Retail-Discount.
LTD is a Zacks #1 Rank stock classified in Retail/Apparel-Shoe. KSS is a Zacks #1 Rank stock classified in Retail-Regional Department Stores.
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Contact: Charles Rotblut, CFA