Time to Go Shopping for Retail Stocks

Things are getting bullish on the retail front. On Tuesday, we received the
official October figures from the Commerce Department that showed retail sales
rose 0.5% during the month. The overall metric was spurred by healthy auto
sales, but the growth numbers were actually more impressive sans auto and
gasoline. That figure came in at a robust 0.7% increase, the biggest upward move
since March. For investors with a penchant for retailers, the October sales
figures mean it could be time to go shopping. Of course, before you dive into
the sector, there are several things to consider. First off, all retailers are
not created equal. Yes, we have seen a very nice move higher in the retail
sector at large, as represented by the SPDR S&P Retail ETF (NYSE: XRT ). That
fund, which includes stalwart retail names like Sears Holdings Corp. (NASDAQ:
SHLD ), Aeropostale (NYSE: ARO ) and J.C. Penney Co. (NYSE: JCP ), is up 19.6%
since its Oct. 3 low. But going forward, investors might want to be a bit more
discriminating with their purchases. Ferreting out the retail winners from the
wannabes isn't the simplest task, but that task has become easier over the
past week thanks to the latest earnings reports. Last week, value-focused
department store operator Kohl's Corp. (NYSE: KSS ) reported a 20% gain in
third-quarter earnings on rising revenues and strong same-store sales growth.
Conversely, high-end department store operator Nordstrom (NYSE: JWN ) missed its
sales forecasts for the quarter. Although the retailer reported a rise in
revenue of 14.2% over the year-ago quarter, it fell short of expectations. Other
notable retail firms reporting earnings of late were Macy's (NYSE: M ), which
outpaced Wall Street forecasts on healthy sales and improved operating margins.
The aforementioned retailer J.C. Penney delivered a loss for the third quarter,
but that loss actually bested expectations. Unfortunately, revenue slid almost
5%, reflecting the discontinuation of its catalog and catalog outlet business.
The company also offered up a disappointing fourth-quarter forecast that
disappointed analysts. The diverse mix of retail earnings will likely continue
during the next few weeks. On Tuesday, we found out that the world's biggest
retailer, Wal-Mart (NYSE: WMT ) reported a 2.9% decline in third-quarter profit,
although it did see same-store sales rise for the first time in 10 quarters.
Target (NYSE: TGT ) was scheduled to release earnings Wednesday. The bottom line
here for investors is they might be best served by picking the strongest
retailers showing the most earnings momentum, especially heading into what is
expected to be a solid holiday shopping season. A recent survey conducted by
accounting firm BDO USA, of Chief Marketing Officers (CMOs) at U.S. retailers,
showed that although cautious heading into the holiday season, retailers are
optimistic about their prospects going forward. Chief marketing officers say
they expect holiday sales to rise about 3% for the year. The real interesting
thing about the survey is that despite their caution, CMOs at major retailers
overwhelmingly say they're expecting increased sales this holiday season.
Overall, 48% of those surveyed anticipate their holiday season sales will stay
about the same, while 41% expect their sales to rise. Only 11% foresee a
decline. Among CMOs from some of the biggest retailers, 67% say holiday sales at
are expected to rise, while just 33% see their sales staying about the same. No
CMOs from large retail chains expect their sales to fall. If the CMOs are on
target, then investors who hold positions in the strongest names in the sector
may indeed have a very happy holiday season. As of this writing, Jim Woods did
not hold a position in any of the aforementioned stocks.