TheChek News Flow

A handful of retailers report September sales tomorrow Thursday October 9 before the open (GPS tomorrow after the close; RAD / WAG reported upside September sales last week, PSMT yesterday and COST today with earnings).

Although September's initial optimism has faded, August B2S momentum and easy comparisons are expected to boost monthly sales results. The September retail period was five weeks ending Saturday October 4—and included typical (lack of) catalysts. ICSC/Goldman expects September sales to be "very strong" with 5-6% increase (up from 4-5% initial forecast), Redbook +4.4% (in-line with target, above initial forecast +3.8%) and Retail Metrics +5.1%. 

Recent Updates/Guidance: Many overlooked the optimistic NRF holiday forecast yesterday as downside guidance from several retailers (TCS -24%, CBK -29% in particular) came into focus. All eyes are on the struggling dept store names today with ongoing Sears (SHLD -13%) concerns and JCPenney (JCP -12%) Analyst Day update --included lowered Q3 comps forecast. Dept store names are all in the red (DDS -2.2%, KSS -1.2%, M -0.8%, JWN -0.4%). On the upside, big box names are trading higher with help from upside Costco (COST +4%) earnings and despite downside Sept comps results—WMT +0.7% and TGT +0.6%.  A handful of other retailers may update guidance including:  DEST, CATO, FRED... 

September Street expectations: September commentary reflects overall cautious tone. Mizhuo reiterates cautious stance—expects September 2H lull period dampened the solid back-to-school traffic in early September. The firm is encouraged by healthier carryover levels, conservative 2H forward buys, and easier 2H compares, and believes the pick-up in promotions and discounting reflects generally tepid consumer spending as shoppers remain highly price-point focused. Janney expects September comps to be roughly in line with expectations, as traffic trends have been choppy post Labor Day. Global issues likely put a damper on consumer desire to spend towards the month end, and with lack of a true shopping catalyst until Black Friday, firm believes consumers will be bargain hunting throughout October.  Telsey Advisory Group checks indicate environment remained promotional in order to drive traffic despite cleaner inventory levels. In addition, some warmer weather in September could act to defer autumn-related purchases into October. In general, Telsey holiday expectations appear moderate at this point, and promotional environment is not expected to improve. Oppenheimer thinks after robust Labor Day weekend, traffic/sales remained sluggish, especially as weather was still sub-optimal for fall apparel purchases, with trends likely improving in the final week. Topeka notes easy y/y comparisons. Labor Day weekend saw strong traffic and sales, though the usual lull settled in mid-month. While promotions picked up during the month (as expected), they were still quite moderate for most into week 4. Firm thinks lower inventory and easy 2H compares should allow for better results in 2H14. While consumer confidence took a step back in September (notes Ukraine/Russian conflict, the Ebola epidemic, the ever-troubled Middle East), the U.S. economy continues its slow slog to recovery.

Looking Back: Momentum continued from July as heightened promotional activity+tax break holidays lured in BTS shoppers. In addition to the majority of retailers reporting monthly sales above estimates (and the few that missed were modest), COST and drugstore names RAD / WAG also reported prelim quarterly sales above/ in-line with expectations. The retail sector was outperforming following August results and upside earnings/guidance from handful retailers. The SPDR Retail (XRT) was +0.6% on the day, Retail HOLDRS Trust (RTH) +1.0%, Consumer Dis Spdr (XLY) +0.4% vs S&P500 index (SPX) -0.2%. 

Retailers that beat August Same-Store Sales estimates:

• L Brands (LB) reported Aug comps of 5% vs 2.8% consensus. The stock gapped up 1.3% and closed near same level. 
• Costco (COST) reported Aug comps of 7% vs 4.9% consensus and Q4 net sales above expectations . The stock opened 1.4% higher and ended up more than 3% on the day.  
• Fred's (FRED) reported comps of 2.3% vs 0.8% consensus. The stock opened +0.8% and closed +1.4% the following day. 
• PriceSmart (PSMT) reported Aug comps of 2.3% vs 1.1% consensus (traded modestly higher the following day)
• Cato (CATO) reported comps of 3% vs 2% consensus (above co's expectations but consistent with recent trend). The stock opened flat but ended the day ~1.5% lower.  
• Rite Aid (RAD) reported Aug comps of 3.9% vs 3.3% consensus and prelim Q2 sales in-line with consensus. The stock opened 0.8% higher but closed more than 1% lower on the day. 
• Zumiez Inc (ZUMZ) reported comps with earnings—Aug comps +2% vs +1.8% consensus ( beat by $0.03, missed on revs; guided Q3 EPS below consensus, revs in-line). The stock was sharply lower the following trading day. 

Retailers that missed August Same-Store Sales estimates: 

• Gap Inc (GPS) reported big miss with Aug comps of -2% vs 1.7% consensus. The stock opened more than 5% lower and closed down 4.2% on the day. 
• Walgreen's (WAG) reported Aug comps of 3.7% vs 4.4% consensus and prelim Q4 sales above consensus. The stock opened flat but ended the day up more than 3%. 
• Stein Mart (SMRT) reported comps of 2.5% vs 3% consensus (does not provide earnings guidance). The stock opened slightly higher but ended the day down nearly 2%.  
• Buckle (BKE) reported Aug comps of 0.8% vs 1.1% consensus (does not provide EPS guidance). The stock opened 1% lower and closed in the red. 

Going forward: The October retail period is the final month of Q3 and will include four weeks ending Saturday November 1. Catalysts include Columbus Day and Halloween (Friday vs Thursday last year). Retailers will report prelim Q3 sales/updated guidance with October sales on Thursday November 6. 

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