Zacks Industry Outlook Highlights: Zumiez, L Brands, Buckle, Gap and Fred's

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Nov 12, 2014, 09:30 ET

CHICAGO, Nov. 12, 2014 /PRNewswire/ -- Today, Zacks Equity Research discusses the Retail, including Zumiez Inc. (Nasdaq:ZUMZ-Free Report), L Brands Inc. (NYSE:LB-Free Report), Buckle Inc. (NYSE:BKE-Free Report), Gap Inc. (NYSE:GPS-Free Report) and Fred's Inc. (Nasdaq:FRED-Free Report).

Industry: Retail

Link: http://www.zacks.com/commentary/35292/strong-holiday-season-likely-for-retailers

Despite commencing the year on a sluggish note, the U.S. economy soon started to recover prompting the Federal Reserve to wind up its stimulus program, initiated to boost economic growth and keep interest rates low. Stocks have done reasonably well in this backdrop, with the large-cap S&P 500 index up +10.8% in the year-to-date period. The Retail sector, however, hasn't been a big participant in the stock market's year-to-date gains, with the sector's performance better than only 5 of the 16 Zacks sectors in the index.

The economic outlook for rest of 2014 and next year remain positive based on favorable economic data and an improved consumer and business outlook. The labor market has started making sustainable gains, with the unemployment rate steadily coming down.

Gradual recovery in the housing market, strengthening of the manufacturing sector and improving labor market are positive indicators no doubt, and the retail sector is likely to grab all the attention. These feel-good factors have abated fears of a derailed economy that arose after the first quarter of 2014, when GDP data revealed a 2.1% decline.

Economic growth in each of the following two quarters exceeded 3%, with the advanced Q3 GDP growth coming in a better than expected 3.5%. All of this combined have started showing up in improved consumer confidence measures, which when combined with the recent slide in oil prices has raised hopes of a positive holiday shopping season.

Data compiled by the nation's largest retail trade group, National Retail Federation (NRF), suggests a 4.1% jump in holiday sales (November and December) to $616.9 billion, against 3.1% growth registered last year and better than the 10-year average sales increment of 2.9%. Online sales for this holiday season are projected to increase 8%–11% to approximately $105 billion, according to Shop.org. Moreover, NRF expects seasonal recruitment to range between 725,000 and 800,000 this year compared with 768,000 hired in the prior holiday season.

However, buyers' loosening their purse strings is not enough; retailers must also be on their toes to make the most of this holiday season. Be it with early-hour store openings, promotional events, free shipping on online purchases or heavy discounts, retailers must throw all possible bait to attract buyers.

Key Metrics

The key data in the retail industry analysis is comparable-store sales (comps), as it excludes sales at newly opened and closed stores. The recent sales data of most retailers display a slight slowdown that resulted in soft comps for October. Though the industry is picking up pace, soft sales for the month reflects a lull in the shopping scenario, usually observed after the back-to-school season comes to an end and the Christmas holiday shopping season is just about to commence. As this scenario is repeated every year, it is not a matter of concern.

Moving forward with the list, Washington-based retailer of sports-related teen apparel Zumiez Inc. (Nasdaq:ZUMZ-Free Report) reported a 3.1% increase in comps while sales improved 11.7% to $51.7 million from the year-ago period. Comps of the clothing retail chain L Brands Inc. (NYSE:LB-Free Report) rose 3% while sales also improved by 3% to $700 million.

Apparel and accessories retailer Cato Corp. reported a 2% rise in comps along with a 6% improvement in net sales. Further, off-price retailer of apparels, footwear and accessories, Stein Mart Inc. registered a 1.4% increase in October comps while total sales rose 2.9%.

On the other hand, the list for disappointed retailers of the month was topped by The Buckle Inc. (NYSE:BKE-Free Report), which posted a 4.4% fall in comps and 1.3% decline in net sales to $85.4 million for October. This was followed by The Gap Inc. (NYSE:GPS-Free Report), which reported a 3% decline in comps and 2.3% increase in net sales to $1.26 billion. Another downer on the list is discount store operator Fred's Inc. (Nasdaq:FRED-Free Report), which reported a 1.4% fall in comps as against an increase of 0.8% last year. Fred's net sales for Oct 2014 were up 1.3% to $145.3 million.

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