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Same-store sales for the month of September were released on October 4. As in the last two months, apparel retailers performed the best, followed by discount. We were bullish on retailers like TJX, Target (NYSE:TGT), Ross Stores (NASDAQ:ROST), Gap (NYSE:GPS) and Macy's (NYSE:M), and all of them performed well. Overall, sales were good; however, they were slower than the last two months. Retailers had a healthy back-to-school shopping season in August, which continued in the earlier half of September, and slowed down toward the end, as expected by analysts. According to retail metrics, sales rose 3.9% (not including drug stores) for the 20 companies that it tracks, topping estimates of 3.7%, but below August's 5.9% gain in performance. Overall, discounters' comparable same-store sales rose by 4.3%, while only a 1.4% increase was expected. Apparel stores beat discounters by posting 5.6%. Some departmental stores missed estimates; however, they posted comparable store gains.

Discount

Costco (NASDAQ:COST), an operator of warehouses, posted a 6% (including impact of gas prices and foreign exchange) gain in same-store sales, compared with expectations of a 4.5% increase. This is on top of a 7% gain last year. The stock is up 22% YTD, and has seen a lot of upgrades recently.

Target , one of the biggest discount chains in the U.S., posted same-store sales gains of 2.1%, topping Retail metrics' estimates of 2%. Thomson Reuters expected a 2.2% gain. Last year, the gain was 5.3%, mainly due to the huge success of Missoni products. Target has said that it would join the club of retailers [Wal-Mart (NYSE:WMT), Saks (NYSE:SKS)] that will not report same-store sales, starting Q1 2013, so that the focus stays on the longer term. The stock is up 1.5% after the September sales results. To read about TGT in detail, click here.

Apparel

TJX, an off-price apparel retailer, reported a sales increase of 6%, beating analyst estimates of 4.4%. Last year, it had reported sales gains of 4% in September. TJX seems to have the right offerings for customers, and the weak economic situation is helping it attract even more traffic to stores. Sales were up across all divisions. Even TJX Europe saw a same-store sales rise of 13%. The company expects the holiday season to be "terrific for TJX." The company did not raise its Q3 guidance because of an unexpected pension accrual correction charge. It maintained its EPS guidance in the upper half of $0.56-0.59, while analysts expect $0.61. We recommend buying TJX, based on our thesis.

Ross Stores , another off-price apparel retailer, continues to impress by beating same-store sales estimates of 4.3%, after it posted a 5% increase. This 5% is on top of a 5% gain last year in September. The company raised its Q3 EPS guidance, based on strong September sales, from 63-66 cents to 70-71cents. Analysts expect 71 cents. Read our article on ROST for details of our bullish stance on the retailer.

Gap continues to resonate with shoppers this back-to-school season. According to Thomson Reuters, a 5.3% gain was expected, while the company achieved a 6% gain. Old Navy, which caters to the more price conscious clientele, posted a gain of 10%, while it was expected to show a gain of 6.4% only. The North America segment was expected to post a gain of 5.9%, but fell slightly short (5%). It is likely that the company will beat Q3 estimates. We recommend buying GPS.

Limited Brands (LTD) continued to beat analyst estimates; however, gains were below last year's double-digit increases. The company posted same-store sales of 5%, which topped estimates of 4.7%. In August the company had posted an 8% increase, while analysts had expected 4.2%. Credit Suisse recently upgraded it from Neutral to Outperform, with a price target of $59 due to its pricing power and overseas expansion opportunities. The company has a respectable dividend yield of 2% as well.

Cato Corporation (NYSE:CATO) posted same-store sales gains of 4%, while analysts expected them to be flat. The company issued guidance for EPS to be in the lower part of the 12-17 cents range. Analysts are expecting 17cents.

Teen apparel

Wet Seal (WTSLA) was yet again the biggest loser in same-store sales for September, after a similar showing in August. September's same-store sales were down 12.7%, compared with August's 18.3%. Same-store sales in September 2011 were -0.3%.The company continues to say that results are in line with expectations, and that performance would improve in the coming months as it returns to fast fashion merchandising.

Zumies (NASDAQ:ZUMZ) is up almost 2%; following news of 5.6% same-store sales gains. This was more than analyst's expectations of 3.2%. We think that the stock is evenly priced. To read about our cautious stance on ZUMZ, read our article.

Department stores

Department stores posted gains that trailed analyst's estimates. Macy's , Nordstrom (NYSE:JWN) and Kohl's (NYSE:KSS) missed estimates, as customer look for fashion at appropriate prices.

Macy's did not perform as well as expected, however, the 2.5% gain is healthy, still, compared with other department stores. Analysts expected a 3.3% increase. The shares have risen further by 0.3% since the sales report. M posted 4.1% in September 2011, and 5.1% last month. The company said that it "feel(s) good" for the remainder of the fall season, as it brings in fresh inventory. We are positive about the company's prospects going forward.

Kohl's performance reflected the pressure that the mid tier stores are facing. Same-store sales were down 2.7%, while analysts were expecting them to be almost flat (-0.2%). We had recommended not buying KSS due to consumers preferring off- price and luxury retailers over mid tier ones to get more value for their money. Following the news, the stock is down 2%. The short ratio rose from 3.9 days in July to the current 5.8, showing the bearish sentiment in the market. The company's guidance for Q3 is still the same, $0.82-0.89/share. Analysts expect $0.86/share.

Nordstrom posted strong same-store sales gains of 4.4%; however, it was below analyst's estimates of 5%. The high-end chain had posted a 10.7% gain last year due to starting of free shipping and returns on online sales. Sales this month were affected by returns related to the later-than-usual anniversary sales. Nordstrom Rack stores (Off-price stores) posted comps of 6.9%. We recommend buying JWN, based on its ongoing expansion of the Nordstrom Rack stores as well as its planned expansion in Canada in 2014.

Stage stores' (NYSE:SSI) comparable store sales were up 11.1%, compared with estimates of a 2.7% increase and -0.7% performance last year. This follows a 6.5% increase in August 2012. Sales from every merchandising category were up. The stock set its 52-week high yesterday, and is up 65% year to date.

Bon Ton's (NASDAQ:BONT) posted an increase of 0.6%, compared with -3.6% last year. E-commerce sales showed a double-digit increase. The stock is 233% YTD. The stock had gained more than 30% in September, after the CEO had announced a turnaround strategy involving cost cutting, marketing efforts and better control of inventory levels. The company might be using coupons to draw in customers in addition to expanding offerings to appeal to a broader segment of shoppers.

Along with Retail Metrics, Thomson Reuters and International Council of shopping centers (ICSC) had also given comparable store sales estimates. According to Thomson Reuters' expectations, sales were to rise 3.6% for the 17 retailers that it tracks. According to ICSC, same-store sales increased by 3.9%, while they were estimated to be in the range of 3%-4% for the 22 retailers that it tracks. Overall, the performance was not stellar (as August same-store sales were 5.9%), but managed to beat expectations. Higher gas prices and political uncertainty might have pressured sales, but the consumer confidence index rose to 70.3 from 61.3. The National Retail Federation (NRF) expects retail sales to increase by 4.1% in the holiday season; a forecast more optimistic than any since the recession. Online sales are going to be a large chunk of retail sales. According to shop.org, online sales should be up 12% in the holiday season, which would benefit the likes of Macy's, which has experienced strong online sales growth.

We recommend a long position in TJX, ROST, GPS, JWN and COST. All of them showed robust same-store sales results for September. Discounters are clearly the favorites among shoppers.

Source: 5 Retail Stocks To Buy On Better Same-Store Sales