June same-store sales figures across several retailers were mixed, but mostly positive in our view. Continuing the trends we've seen for the last few quarters, US consumers are choosing clear winners and clear losers. Luxury and designer brands continue to perform well, but low-end stores continue to struggle.
Nordstrom (JWN) and Saks (SKS) posted stronger-than-expected same-store sales growth. Nordstrom and Nordstrom Rack grew sales 8.5% and 8.2%, respectively, for an aggregate same-store sales growth pace of 8.1%. This gain was drastically higher than the 4.7% consensus was expecting. Saks also beat consensus expectations, with same-store sales growth coming in at 6%. Both retailers are more focused on the high-end consumer that continues to remain resilient and attracted to luxury items. Regardless, we think both stocks are fairly valued at current levels.
Off-priced designer retailers also continued to post strong results in the month. TJ Maxx (TJX) saw same-store sales increase 7% compared to a consensus estimate of 4.2%. Ross Stores (ROST), which is still significantly smaller than TJ Maxx, also saw same-store sales increase 7% versus consensus estimates of 4.8%. Though we do not think these stores are stealing much, if any, market share from Nordstrom or Saks, we do think the retailers' strong performance is reflective of consumer tastes that continue to favor brands with higher perceived quality over quantity.
We think shares of Ross Stores are slightly overvalued at current levels, but the company's continued positive fundamental performance and strong balance sheet make it a difficult stock to be too pessimistic about. On the other hand, we think TJ Maxx is still fairly valued. Our valuation reports can be found here.
Unlike the off-priced and luxury segments that posted strong results in June, department stores clearly struggled. Kohl's (KSS) saw same-store sales tumble 4.2% in June, though management noted that performance accelerated near the end of the month. Though shares of the Wisconsin-based department store are trading at the low-end of their estimated fair value range, we're still cautious about owning shares of Kohl's at current levels. The firm's business model is facing pressure from fast-fashion retailers and off-priced discounters. Yet, we could see the retailer take some market share from JC Penney (JCP), which seems to have alienated its traditional customer base.
Macy's (M) also reported weaker-than-expected results in June. Same-store sales increased 1.2% compared to a consensus expectation of 1.9%. The firm cited lower tourist spending in New York and a difficult macroeconomic environment as the factors that drove its performance. Yet, the company reiterated its full-year earnings per share and same-store sales guidance. Macy's has executed well in spite of a challenging middle position between stores like Nordstrom and JC Penney. Considering how strong Saks' performance was during the month (and that Macy's same-store sales figure is mostly driven by its New York flagship store), we feel Macy's might be losing some share to the higher-end. We think the shares are fairly valued.
Clothing and apparel
The apparel segment was mixed, but overall, we thought results were positive. Gap's (GPS) same-store sales were flat versus a consensus estimate of 0.1% growth. However, Gap, Banana Republic, and Old Navy each posted positive results in North America, but international sales tumbled 14%. Thus, we think the US was actually strong. The Limited (LTD), owner of Victoria's Secret, Henri Bendel and Bath & Body Works, saw sales grow 7% compared to consensus estimates of 2.4% growth. Stores at the Limited are a strong gauge of discretionary spending, in our view, so we think its numbers are a good telling of the resilience of the US consumer.
The Buckle (BKE) did not see the same strength as The Limited and Gap. Same-store sales at the retailer fell 2.5% versus consensus expectations of flat performance. We think The Buckle's younger consumer remains particularly challenged. College graduates are having a difficult time finding post-grad jobs, and unemployment remains high among teenagers. We think shares of all three retailers-Gap, The Limited, and The Buckle-are fairly valued.
Costco and Target
Costco (COST) and Target (TGT) both reported slightly worse-than-expected results. Costco reported same-store sales growth of 3% versus an expectation of 3.7%, and Target saw growth of 2.1% versus an expectation of 2.4%. We aren't reading too much into results for either retail giant, however. Costco noted that fuel had a minimal impact on sales, but we think lower input prices could have led to overall lower prices and, by extension, lower top-line sales.
Target's results indicate the firm may be losing some share to Walmart (WMT), but we aren't overly worried about the retail giant either. Though Target's performance fell short of expectations, we think growth was still decent, and sales were likely negatively impacted by lower grocery prices. We think shares of both retailers are fairly valued at this time.