Why the Retail Read-Through Is Overdone

With a parade of disappointing headline numbers from retail today, we had commentators on all day discussing this as yet another sign that we are in for a recession. However, while retail has been one of the worst performers year-to-date, kicked off by weather and then spotty demand, today's reports are NOT a waring sign of more weakness to come. 

Retail, more than any other sector, is all about execution. And we had a couple of issues in the recent reports.

First Home Depot (HD) was seen as a disappointment, but then on their call, they said that most sales lost to weather in the first quarter would be realized in the second quarter, with May sales as 'robust.' In other words, Home Depot is well positioned, as Chairman and CEO Frank Blake cited the "bathtub" effect of seasonality.

Second, Dicks Sports (DKS), reported a dismal drop in comps. But is it that people aren't going and buying Nike NKE or Under Armour UA apparel? No! It was an issue with their hunting and golf business. Dicks has lost out on its investment in golf-- the Galaxy business-- which continues to do poorly. The key issue in my view? The upper end consumer that is going to get new clubs is going to go to a pro golf shop, not to walk into a warehouse.

Third, Staples (SPLS). The supposed beneficiary of the Office Max-Office Depot merger? No way. They have not transformed their model quickly enough.

TJX (TJX)? The results weren't bad. Expectations just had come up too much.

Interesting that even on a day where the momentum names were hurt, Amazon AMZN was up. Share take? Yes.

We continue to see strong execution -- Nordstroms (JWN) the winner of the retail world this quarter.

 

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