Discount Retailers Prevail in August

Consumers held on to their wallets as they looked for deals at stores.
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NEW YORK (

TheStreet

) -- August did not provide any real shocks to the retail sector.

Discount retailers posted better-than-expected earnings while higher-end stores continues to suffer, an indication that consumers are still wary of spending. Those results will continue to put a damper on the health of the U.S. economy.

Overall, retailers reported same-store sales fell an average of 2.9% at the 30 retailers tracked by Thomson Reuters. Although this decline was better than the 3.5% expected by analysts, half of the tracked stores missed analysts' expectations.

It appears that consumers are still holding onto their wallets by shopping for only the essentals at discount retailers like the

Gap

(GPS) - Get Report

and

TJX

(TJX) - Get Report

.

In fact, retail giant,

Costco

(COST) - Get Report

, which closed at $50.75 and is up 32% from its March low of $38.44, reported a 2% decline in same-store sales, noting food and sundries were its best sellers.

Additionally, higher-end stores such as the

Children's Place Retail Store

(PLCE) - Get Report

, which was expected to see a boost in sales driven from back-to-school shopping, reported a worse-than-expected 8% same-store sales decline that was much higher than analysts' expectations of a 3.3% drop.

The latest retail report supports the notion that consumers are only spending on essentials and trying to preserve their disposable income. This trend, if it continues, will make it difficult for the economy to recover.

From an investor's perspective, the

SPDR Consumer Staples Select ETF

(XLP) - Get Report

, which closes at $24.61 on Wednesday and has gained nearly 26% from its March low of $19.41, is a good place to look.

Additionally, the

SPDR S&P Retail

(XRT) - Get Report

, which closed at $31.20 on Wednesday, up 71% from its March low of $18.27, is another good way to gain exposure to discount retailers.

When investing in these equities, one must keep in mind the inherent risks involved. To help mitigate these risks, using an exit strategy is important. According to the latest data from www.SmartStops.net, an upward trend in the mentioned equities could come to an end at the following price levels: COST at $48.47; XLP at $24.21; XRT at $29.92. These price levels change on a daily basis and updated data can be accessed at www.SmartStops.net.

-- Written by Kevin Grewal in Laguna Niguel, Calif.

At the time of publication, Kevin Grewal did not hold any positions in the stocks and funds mentioned. Grewal is an editorial director and analyst at SmartStops.net where he focuses on mitigating risks and implementing exit strategies to preserve equity. Prior to this, he was an analyst at a small hedge fund where he constructed portfolios dealing with stock lending, exchange-traded funds and alternative investments. He is an expert at dealing with ETFs and holds a bachelor's degree from the University of California along with a MBA from the California State University, Fullerton.