October Retail Sales Seen Benefiting From Easy Comparisons

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About: Consumer Discretionary Select Sector SPDR ETF (XLY), XRT, VCR, RTH, RETL, FXD, FDIS, RCD, PMR, CNDF, FTXD, JHMC
by: Lipper Alpha Insight

By Jharonne Martis

The monthly reporting retailers are expected to show continued signs of struggle in October, but same-store sales (SSS) are at least benefiting from comparisons with even lower numbers a year ago.

The Thomson Reuters Same-Store Sales Index is expected to show a 1.1% gain for October 2016, an improvement from October 2015's -0.4% result. An increase of 3% or more indicates a healthy retail industry. This October, the Discount sector is expected to post the strongest SSS growth, while the teen index is hurting the most.

Gap (NYSE:GPS) has the heaviest weighting in our apparel sector, and is bringing the overall group down with a -1.5% SSS estimate. Still, its Old Navy division continues to outperform the other divisions and is expected to register a 3.7% SSS.

Analysts polled by Thomson Reuters expect the Apparel sector as a whole to report a -0.7% SSS, compared to the 0.7% SSS recorded in October 2015. Meanwhile, L Brands (NYSE:LB) has the strongest estimate in this group at 1.7%, below well below last year's 5.0% SSS. Victoria Secret's -0.4% SSS estimate brings the sector down as it continues to struggle transitioning its merchandise.

Among teen retailers, The Buckle (NYSE:BKE) has the weakest October SSS estimates at -14.3%, while Zumiez (NASDAQ:ZUMZ) has the strongest at 3.0%.

October marks the last month of the retail industry's third quarter. Our Thomson Reuters Quarterly Same-Store Sales Index, which consists of 80 retailers, is expected to post 1.1% growth for Q3 (vs. 1.4% in Q3 2015).

Exhibit 1. October 2016 SSS estimates

Source: Thomson Reuters I/B/E/S Estimates. Note: Aggregate mean data is revenue weighted.

Exhibit 2. Zumiez is on Top, While The Buckle Is Expected to Post the Weakest SSS

Source: Thomson Reuters I/B/E/S Estimates