Same-Store Sales Strengthen Retail
By
Ann Sosnowski
Boy, did I make a big mistake.
The day before the Super Bowl, I decided to go to the mall. I know… I’m crazy.
I had already waited more than a month to return a piece of clothing that my beau’s mother bought me. And the only Old Navy store in the area was at our local “mall” that doubles as a destination for shopping bus tours.
I was forced to park as far away from the mall as possible due to traffic. It took me 10 minutes to push and shove through a waxing and waning crowd to a store that I could see 100 feet in front of me.
Why were these people here? Was it because they couldn’t go shopping on Super Bowl Sunday? Was it because they had nothing better to do in the freezing cold temperatures? Were they returning motley Christmas gifts like I was, using gift cards they’d haphazardly shoved in their wallet, or even biding time before stuffing themselves like sardines in a movie theatre to view the next semi-ok movie?
At the time, I didn’t care. I had already broken my rule of not going to a mall (which I avoided, to the bane of friends and family, for nearly two years.) I’d already lost my pride. I didn’t want to lose my temper.
A trip that I thought would be a 15-minute venture didn’t end until an hour and a half later, when I made the mistake of going to Bed Bath and Beyond for a small storage unit I’d seen on their Web site. After explaining the look and feel of the item, the nice lady at the store showed me a row of shoe racks. I didn’t ask for shoe racks.
Still, the question remains: What were all those people doing at that darn mall?
Well, regardless how or where they were doing it, they were spending money… lots of it. These are known as holiday follow-on sales. Since most of the East had yet to enjoy an extremely frigid winter until this past week, consumers were buying coats and hats and gloves and scarves, and anything else to keep them warm. Additionally, gift cards were being cashed in and causing consumers to spend more at specialty stores than they would without a gift card.
Same-store sales for stores open at least a year in January 2007 rose 3.9%, according to Thomson Financial’s analysis of the top 55 retail chains. (This does not include Web sales or some retail chains that refuse to release monthly sales statistics.) Compare this to the modest 2.9% that same-store sales gained in November and December, and you can see where the true holiday season lies.
Late last year I told you that the worst time to purchase any retail stocks was in the middle of the holiday season. It’s the fourth-quarter earnings announcements and forward-looking statements that make retail stocks better valued and in essence, better investments.
Of course, analysts do caution that American consumers may be tapped out in the near future. For one, employers slowed hiring in January, and even laid some people off. (Of course, as Adam has pointed out plenty of times, the bulk of these jobs were retail services jobs hired to handle increased customer traffic.) Additionally, Americans’ savings hit –1% in 2006.
Please, don’t discount American buying power. Tax returns are being filled out right now as we speak, stamped, sealed, and sent in the mail.
Do you really want to tell me that the majority of Americans, who can’t really save and have a love affair with credit, will use their tax returns for something, oh I don’t know, pragmatic… like paying their car loans down or taking some edge off of their credit card’s minimum payment? No way… they’re going to use that money to buy everything they asked their family and friends for at Christmas time, but didn’t receive as a present.
In that vein, don’t look for retail to slow down any time soon.
An observation of the Retail Service HOLDRs ETF (RTH:AMEX) on an annual scale, shows that more times than not, bullishness is pervasive enough to lift retail stock prices straight through to April.
Of course, 2003 was the best year for the RTH, gaining 31% in 365 days.
This year is set for the same movement.
In 2003, the RTH executed a strong and steady 10-day over 50-day Moving Average. While these bullish crossovers have occurred since, the most recent cross is as strong as that one from 2003. The others were inherently weak.
Additionally, RSI levels are as they were in 2003, with more room for growth.
And, the most bullish indicator of all… a new historic high on the RTH today at $104.90.
Never judge against a new high… if this looks anything like 2003, which I believe the RTH to be emulating, this retail index could rise as high as $131 per share by the end of 2007.
Ann