Attention Retail Shoppers!

Since my February 13th blog where we looked at the retail sector, it seems like girls just wanna do something other than open up their Prada bags in the department stores. Previously, I mentioned that independent analyst Dana Telsey thought that retail was due for a rebound especially since many of the stocks were 26% off their yearly highs–her major criterion for a sector bull market. So, did retail measure up to her prediction?

The answer is a qualified no as there were a few stocks that did pretty well, at least up until the beginning of June. The party abruptly came to an end when J. Crew significantly lowered EPS (earnings per share) guidance on May 29th. That announcement instantly trimmed 27% off the stock price and that, along with the majority of the major retailers, was the beginning of the end. All of Ms. Telsey’s four picks–Abercrombie & Fitch (ANF), Tiffany (TIF), Lululemon (LULU)*, and J. Crew–have been down significantly since June. (J. Crew is now down 50%.)

So, what’s happened to the stocks I recommended? I’m going to pat myself on the back for picking Urban Outfitters (URBN) as being best of breed, at least chart-wise. Since I mentioned it, the stock has steadily risen 17% and just made a new all-time high ten days ago. Fundamentally, the company beat analyst expectations on increased same-stores sales and improved margins as reported in last week’s earnings release. Here’s how my other 52-week high picks have performed:

Buckle (BKE): Up 25% since 2/13. The stock has been trading between $44 and $52 since March (it’s been a great channeling stock!) and I’d either add to current positions on a decisive break above its upper channel or lighten up on a break below its lower one.
Aeropostale (ARO): Up over 20%. It too recently put in a new all-time high and still sports a bullish chart.
Wal-Mart (WMT): Up 16%. Overall, the stock is advancing but it’s been caught in a trading range for the past few months. If you own the stock, writing covered calls could be a good strategy to generate a little extra income. Note that the company pays a dividend (currently 2%).
Gymboree (GYMB): The stock was up 17% before succumbing to the early June sell-off. The stock is trading right at support and I can’t say whether or not that level will hold. I wouldn’t be a buyer (or a seller) until I get some sort of definitive confirmation.

Stocks breaking out of bases didn’t fare nearly as well. Many of the stocks rode the escalator into the basement. Jones Apparel (JNY) was the only stock that held onto the hand-rail. The take-away lesson here is that stocks making new highs fared significantly better than those breaking out of bases.

Are there any bargains out there?
Most of the retailers have been singing the summertime blues (and there ain’t no cure for them), especially the mid to high-end department stores. (Look at the charts of Saks (SKS), Coach (COH), Nordstrom (JWN), Macy’s (M), and Gottschalks (GOT) and you’ll see what I’m talking about.) To add to current woes, teen apparel manufacturer and retailer Hot Topic (HOTT) today reported disappointing same-store sales and said that back-to-school trends have been weak so far. These sentiments echoed Ms. Telsey’s comments made on CNBC yesterday who said that back-to-school sales have been dismal so far but there’s a chance sales may pick up at the last minute. She also expects the Grinch to steal some Christmas cheer with shoppers reducing their holiday spending. So, is there anything out there worth buying?

Predictably, the lower-end retailers are the ones that are currently in vogue and are seeing the strongest price movement. Big Lots (BIG) leads the lineup followed by Fred’s (FRED), Family Dollar (FDO), and Dollar Tree (DLTR) which have all put in recent highs. Although analysts prefer Wal-Mart to Target (TGT), I much prefer shopping at the latter and I’m crossing my fingers that the stock can follow up on its recent bounce off major support. (I don’t know about you, but the Wal-Mart stores in the Los Angeles area are grimy, ugly, poorly lit, and staffed with gang members. I’m afraid to go in them!)

If you do elect to buy retail, I would advise you not to put all of your purchases in one shopping basket, as some of them could just be passing fads, like flowered shirts and bell-bottom pants. Oh, wait, aren’t they back in style?

*Jim Cramer picked Lululemon near the stock’s peak last year. I’ve found that whenever Cramer picks a niche-type stock (and he usually does it when the stock has already made a huge run up), it’ll go up for a short time most likely due to the Cramer effect, then it’ll reverse sharply and drop faster Paris Hilton’s skivvies. In fact, one could make beaucoup bucks by shorting them. A couple of other Cramer clunkers have been Zumiez (ZUMZ) and Jones Soda (JSDA). Check out those stinky charts–eeeew!

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