Brian Sozzi Discusses Macy's, Kohl's Earnings

Brian Sozzi of Wall Street Strategies is out with a research report discussing earnings from Macy's M and Kohl's KSS, as well as the health of the retail sector. In the note, Sozzi says that the strong reports from Macy's and Kohl's have defied the conventional wisdom of consumer spending drying up in the middle income and upper middle income households, and higher ticket prices would kill consumer demand. Sozzi says, "Selectivity is key when picking retail stocks in the current volatile environment. For as solid as the earnings reports were from Macy's and Kohl's, when I hear Family Dollar (FDO) blame the paycheck cycle for its poor sales (likely to hear this from Wal-Mart next week also) and see units per transaction weaken at specialty apparel retailers clearly all is not completely fine and dandy for many households across the country." He goes on to note that management teams provided UPOD: under promise, over deliver, as visibility was very low in the first quarter. He says that the shift to online shopping continues and consumers are finding better deals for them on line. He concludes the note by saying, "Shares of Macy's and Kohl's trade on roughly equivalent forward P/E multiples; 8.4x for Macy's and 8.7x for Kohl's. I continue to think if one is inclined to jump into consumer discretionary currently, the stock of the targeted company must be deeply discounted and have a strong investment thesis. Macy's fits the bill better than Kohl's. Macy's is managing its inventory in a stronger manner than Kohl's, is aggressively paying down debt, and continues to raise its fiscal year guidance due to momentum behind fundamental drivers, instead of share repurchases as is the case at Kohl's."