Retailers in 2014: A Story of Execution

With the spending-centric December behind us, how will retailers fare in 2014? The question of resilience in consumer spending in a still spotty recovery is a question front-and-center for many investors, particularly as preliminary data trickles in. The truth is that retail is a game of haves and have-nots. Execution and merchandising are more important in the retail sector than in any other.

Today's preliminary results are case-in-point of this concept. We see this at the low end, when an outfit like Family Dollar (FDO), which reported a disappointing quarter this morning, gave an outlook for negative comps in 2014 and cut outlook by 15%. Management cited weakness in discretionary items due to a weakened consumer in particular - but that's not something we are seeing at Dollar General (DG), the behemoth of the group that continues to outperform and has more growth upside to boot. This divergence played out last year, with Family Dollar up 2% and Dollar General up 37% last year.

A stellar merchandiser and manager? Terry Lundgren, CEO of Macy's (M). We continue to see a trend of transition to online buying, where Amazon (AMZN) is king. But traditional department store Macy's has been a first-mover innovator in embracing an omni-channel initiative to optimize both online and brick-and-mortar sales. This, coupled with in-store initiatives including "My Macy's" localization and salesperson training, termed "Magic Selling," have continued to drive the stock higher. The company's announcement this morning of November/December holiday same-store-sales of 3.6% and solid 2014 guidance and cost reductions all benefit the stock. Macy's is confronting reduced mall traffic head-on at Macy's and Bloomingdales - a key reason why it has outperformed peers including Nordstrom (JWN).

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