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Retail Reports Hold Up

Marc Lichtenfeld

Retailers' first-quarter earnings reports over the past two weeks were supposed to prove once and for all that the consumer is in trouble.

The consumer, however, never got the memo.

The retail earnings reports proved that customers will continue to patronize the shops that excite them. But stores that miss on merchandise, mood or employee morale will suffer significantly.

One of the best examples of a solidly performing company keeping customers excited is Target (TGT Quote - Cramer on TGT - Stock Picks). There wasn't much to complain about in the company's report, even though I looked pretty hard.

Target boosted margins and reported a robust 4.3% growth in same-store sales, despite a 6.1% drop in comps in April. Target, along with Costco (COST Quote - Cramer on COST - Stock Picks), appears to have become America's favorite place to shop for bargains.

Meanwhile, mid-tier department-store chains J.C. Penney(JCP Quote - Cramer on JCP - Stock Picks) and Kohl's(KSS Quote - Cramer on KSS - Stock Picks) blew past expectations, not giving much weight to arguments that Average Joe is feeling pinched by rising gas prices and the housing slump.

Wealthy Joe is still spending as well. Luxury retailer Saks (SKS Quote - Cramer on SKS - Stock Picks), with its 14.4% rise in same-store sales, is clearly resonating with customers, though its margins were a disappointment. Fellow high-end seller Nordstrom (JWN Quote - Cramer on JWN - Stock Picks) also has shown no sign of letting up.

Retailers' true problems lie in inventory misses and a lack of focus on its customer, as exemplified by Wal-Mart(WMT Quote - Cramer on WMT - Stock Picks). The world's biggest retailer posted fair earnings, but the company's strategy going forward left many wondering whether Wal-Mart has lost its focus. An emphasis on electronics and big-screen televisions seems to be adrift in approach to satisfying the needs of its core customers.

Also, Gap(GPS Quote - Cramer on GPS - Stock Picks) is still stumbling as it tries to zero in on what customers want. While the company actually beat Wall Street's earnings-per-share estimates by a penny, it still posted its seventh consecutive quarter of declining profits. It was the eleventh consecutive quarter of declining sales.

Despite the addition of new designers, Gap hasn't yet hit the mark when it comes to fashion. The company said on its conference call that it is narrowing its targeted customer age range, which is a good step, but right now Gap's turnaround isn't even in the first inning. At this point, the players are still taking batting practice.

Still More on Tap

There are a few key retailers left to report next week. Among the highlights are Coldwater Creek (CWTR Quote - Cramer on CWTR - Stock Picks), Chico's (CHS Quote - Cramer on CHS - Stock Picks) and Costco.

Coldwater reports after the close on Tuesday. The company has had a rough start to the year, reporting dismal fourth-quarter results as it was hurt by weak traffic. But sell-side analysts seem to have more confidence in the company recently. Several analysts have started coverage with or reiterated their buy ratings.

Chico's releases its results the following afternoon, and results likely won't be pretty. The women's clothing seller has already estimated sales of $453 million -- about $14 million lower than Wall Street's forecast. Same-store sales have been awful, coming in lower than expected for the past three months. That included a horrendous 7.6% drop in April, when comps had been to grow 0.6%.

Costco, on the other hand, should report solid numbers Thursday morning. Same-store sales have been strong. In April, a month that was difficult for many retailers, Costco's same-store sales climbed 7%, higher than the 6.4% projected by analysts. The number is even more impressive when you consider that it comes on top of a 7% comp the year before.

Costco also is one of the best retailers at managing its margins, so I'm confident there will be no downside surprise.