Retail Sales Shine, Even If Winter Weather Does Not

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All fall the one constant murmur coming from Wall Street was that holiday sales were going to be the worst in years. In September, sluggish August retail sales were a bad omen for the holiday shopping season. Some analysts maintained that slower back-to-school sales correlated to weak holiday sales. The National Retail Federation (NRF) has now released the holiday numbers, and the naysayers were proven wrong despite some of the worst December weather in years.

According to the NRF, December retail sales, which excludes automobiles, gas stations and restaurants, increased 0.4% seasonally adjusted month-to-month, and 4.6% unadjusted year-over-year. Total holiday retail sales, which includes November and December sales, increased 3.8% to $601.8 billion, which was in line with NRF’s projected forecast of 3.9% and $602.1 billion. In addition, non-store holiday sales, which is an indicator of online and e-commerce sales, grew 9.3% to $95.7 billion. That is a far cry from the shrill warnings heard in August.

We looked at the firms we cover for research for the companies that benefited from the better-than-expected holiday shopping season. We cross-referenced the NRF report for their sector sales data and names that fit.

Home Depot Inc. (NYSE: HD) fits the bill in the building material and garden retail sector. A continued bright housing market is expected to keep earnings at the home improvement giant solid. Investors are paid a 1.9% dividend. The Merrill Lynch price target for the stock is $100. The Thomson/First Call estimate is at $88.02. Home Depot was trading at $81.36. The stock is up 27% since January of last year. The NRF said in broader sector terms, “Building material and garden equipment and supplies dealers stores” sales decreased 0.4 percent seasonally-adjusted month-to-month yet increased 4.2 percent unadjusted year-over-year.”

Michael Kors Holdings Ltd. (NYSE: KORS) has been a hot retail name in clothing and clothing accessories, and it looks poised to remain one in 2014. The company’s performance has been led by the double-digit growth of its operating results. In the second quarter of fiscal 2014, Michael Kors delivered 39% revenue growth as revenue rose to $740 million, while operating income increased by 40% to $221 million. Robert Baird has placed a $97 target on the stock. The consensus figure is lower at $89.53. Michael Kors was trading in the $77.39 range, and shares are up more than 40% in the past 12 months. The NRF’s broader apparel statement said, “Clothing and clothing accessories stores’ sales increased 1.8 percent seasonally-adjusted month-to-month and 4.7 percent unadjusted year-over-year.”

Best Buy Co Inc. (NYSE: BBY) is one of the top electronics retailers. The stock has more than tripled as the company met its rivals head-on last year with price-matching policies that largely eliminated the advantages of its competitors. More importantly, its store-within-store formats for makers of popular mobile devices and computers have drawn interest from major manufacturers, letting Best Buy take advantage of its retail space to give it competitive advantages that online retailers cannot match. Investors are paid a 1.7% dividend. The J.P. Morgan price target for the stock is $49. The consensus estimate is at $46.38. Best Buy was trading Tuesday at $36.61, down more than 20% from the November highs. The NRF said about broader electronics spending, “Electronics and appliance stores” sales decreased 2.5 percent seasonally-adjusted month-to-month and 1.5 percent unadjusted year-over-year.”

Pier 1 Imports Inc. (NYSE: PIR) was a top name in furniture and home furnishings. Compared to 2012’s holiday shopping season, Pier 1 saw its same-store sales climb 1.3% — and that includes the extra week in 2013’s year. Some were disappointed with the number, but the company was facing huge comparison numbers from 2012. Investors are paid a 1.1% dividend. Merrill Lynch likes the stock and has it Buy rated. Its target price is $25. Pier 1 is trading near $20.50, and shares are almost exactly in line with this time last year. The NRF said of the broader sector, “Furniture and home furnishing stores” sales decreased 0.4 percent seasonally-adjusted month-to-month yet increased 5.0 percent unadjusted year-over-year.”

Macy’s Inc. (NYSE: M) is a top retail name in the general merchandise area. The company raised guidance last week but announced store closures and worker firings. Analysts at UBS applaud the great strides the company is making in improving its online sales ability. Investors are paid a 2% dividend. The UBS price target for the stock is posted at $58, and the consensus is at $59.47. The stock is trading at $55.79 and is up more than 50% in the past year.

CVS Caremark Corp. (NYSE: CVS) is in the health and personal care sector and looks to see some immediate benefit from the Affordable Care Act. The company reported outstanding earnings in the third quarter that were up 24% year-over-year, and holiday numbers are expected to be good. With opportunities across pharmacy benefit management, retail and the Minute Clinics, the company is poised to increase sales and share. Investors are paid a 1.6% dividend. J.P. Morgan has an $82 price target for the stock, and the consensus estimate is $75.94. Shares are trading near $68.43, and the stock is up almost 32% in the past year. The NRF noted on health care spending in general, “Health and personal care stores” sales increased 0.6 seasonally-adjusted month-to-month and 5.9 percent unadjusted year-over-year.”

Dicks Sporting Goods Inc. (NYSE: DKS) is the top name in the sporting goods arena. The company is gearing up for huge growth and intends to significantly build its store base to more than 800 — a greater-than 300 store increase. Investors are paid a 0.9% dividend. The Merrill Lynch price target is set at $68 and the stock is on their U.S. #1 list of top names to own for 2014. The consensus is at $58. Dicks is trading right around the $55 level. The stock is up more than 18% in the past year. The NRF said about sporting goods in general, “Sporting goods, hobby, book and music stores’ sales decreased 0.6 percent seasonally-adjusted month-to-month yet increased 5.8 percent unadjusted year-over-year.”

Two other comments came through from the NRF in its review. The report said:

General merchandise stores’ sales were flat seasonally-adjusted month-to-month and flat unadjusted year-over-year. Non-store retailers’ sales increased 1.4 percent seasonally-adjusted month-to-month and 14 percent unadjusted year-over-year.

Trying to handicap holiday sales as early as September is clearly not very easy. Investors also need to be wary when the negative chatter becomes more of a roar. While most of these top retail names should post solid fourth-quarter numbers, it is good to remember that first quarter is often the slowest for many retail stocks. With a pricey market, it may make sense to look for a correction to buy these solid retail names.

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