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by Brian Sozzi

There are no ifs, ands, or buts about it, July 2011 may be the oddest month of same-store sales releases that I have ever seen. At this point, I am somewhat of a grizzled veteran on Wall Street, been through the battles and have made it through unscathed, and with a ton of new insights. So it's not with a lighthearted undertone that I say July was quite peculiar, a month in which Halloween (results were scary good) and April Fools (is the joke on us for believing the numbers?) were rolled up into a single four-week period.

Onto why July was uber weird. Simply, retailers across most sectors managed to triumph over the consensus same-store sales forecasts held by the Street and raise 2Q11 earnings guidance as a result, despite all of the doom and gloom surrounding the health of the consumer. Going a step further, companies that fell short on consensus comp estimates were able to raise 2Q11 EPS guidance. A few explanations after careful consideration...

  • Strong influence of price increases (could be on a bag of ground Starbucks coffee or a Domo t-shirt) and a consumer that dealt with the inflationary force field better than the Street anticipated.
  • Early interest in back to school merchandise (arrived earlier this year in my opinion), perhaps as parents tried to outmaneuver further price increases.
  • Targeted promotional strategies by retailers.
  • Improved speed in the supply chain allowed retailers to chase heat wave type products and charge a premium due to the spike in demand.
  • Tick-up in revolving credit (savings are up, but are people charging items against those savings?)

The Not So Weird

  • Hot Topic (NASDAQ:HOTT): July comp beat, 2Q11 EPS raise
  • Wet Seal (WTSLA): July comp beat, 2Q11 EPS raise
  • Limited Brands (LTD): 2Q11 EPS raise
  • TJ Maxx (NYSE:TJX): 2Q11 EPS raise
  • Saks (NYSE:SKS): Another month of blowout comps, yet the stock has been caught in the mud
  • Abercrombie & Fitch (NYSE:ANF): Impressive 2Q11 comp beat, flagship store fueled

The Weird

  • Gap (NYSE:GPS): Big-time sales miss for July, 2Q11 EPS guidance hike (I do wonder if a new inventory accounting method triggered the revision)
  • Zumiez (NASDAQ:ZUMZ): Underperformed peers in the month, noticeably
  • Kohl's (NYSE:KSS): Disappointing July, 2Q11 EPS guidance raised (perhaps consumers responded better to price increases than management expected)
  • Ross Stores (NASDAQ:ROST): Strong sales beat, 2Q11 EPS guidance raised
  • Target (NYSE:TGT): The weirdest report of them all; strong sales beat, robust in food, comeback in apparel, all geographies comped positive

Course of Action

I think the market may eventually sink its teeth into the glowing aspects of these reports (sales and earnings upside), which generally built on the surprising June resilience. I say "eventually" as positive news is being overlooked today ahead of the non-farm employment report, and given the fact the S&P Retail Index has violated its 200-day moving average.

The investment thesis in the eyes of Mr. Market would be that price increases are not correlating to a sharp decline in sales and consequently, margin estimates by analysts look conservative. Now is still not the time to try and catch falling knives-- stick with beat and raise stories where the fundamental trends of the business are very favorable.

Disclosure: No positions

Source: Analyzing July's Peculiar Same-Store Sales