Brian Sozzi Discusses July Retail Sales

Brian Sozzi from Wall Street Strategies is out with a research report on July retail sales, and is called it "the oddest month of same-store sales releases that I have ever seen." In the note, Sozzi goes on to say, "Simply, retailers across most sectors managed to triumph over the consensus same-store sales forecasts held by the Street and raise 2Q11 earnings guidance as a result, despite all of the doom and gloom surrounding the health of the consumer. Going a step further, companies that fell short on consensus comp estimates were able to raise 2Q11 EPS guidance." Sozzi gives a few possible explanations for the retail sales beats. One of the reasons could be serious price increases going on, as retailers deal with rising inflation, and passing it on to the consumer. He also mentions possible "early interest in back to school merchandise," as well as strong promotions from the various retailers. Sozzi also mentions the improvement in the supply chain process as a potential reason for the potential beats. Lastly, he mentions a move up in revolving credit. Companies like Hot Topic HOTT, Wet Seal WTSLA, Limited Brands LTD, TJ Maxx TJX, Saks SKS, and Abercrombie & Fitch ANF all performed admirably in July, and some even raised full year 2011 guidance as a result. Sozzi concludes the report by saying, "I think the market may eventually sink its teeth into the glowing aspects of these reports (sales and earnings upside), which generally built on the surprising June resilience (I say "eventually" as positive news is being overlooked today ahead of the non-farm employment report and given the fact the S&P Retail Index has violated its 200-day moving average). The investment thesis in the eyes of Mr. Market would be that price increases are not correlating to a sharp decline in sales and consequently, margin estimates by analysts look conservative. Now is still not the time to try and catch falling knives (loving the jargon this morning), stick with beat and raise stories where the fundamental trends of the business are very favorable."