The consensus estimate for a same-store sales gains is down -0.1% from a week ago as a result of lowered forecasts from Walgreen Co. (NYSE: WAG) and Kohl’s Corp. (NYSE: KSS). Other top retailers taking share price hits today include Saks Inc. (NYSE: SKS) down nearly -4%, J.C. Penney Co. Inc. (NYSE: JCP) down about -1%, and The TJX Companies Inc. (NYSE: TJX) down about -1.3%.

Other factors contributing to the lower expectations include the early Easter holiday which pulled sales into March, warm weather in Feburary and March, a late Mother’s day that will push marginal sales into May, and a very high comparison to an 8.7% same-store sales jump in April 2011.

Retail Metrics notes that “the state of the American consumer remains somewhat fragile:”

Unemployment is still entrenched north of 8%, gasoline prices near $4/gallon but looking to have peaked, consumer confidence mixed, … housing and home prices searching for a bottom, growing concerns over a third straight annual economic soft patch, and the weekly initial jobless claims four-week moving average having ticked up again last week.

The research firm also noted that of 19 retailers reporting first quarter results for fiscal quarters ending in March, 16 beat expectations and 15 posted higher year-over-year earnings growth. On the basis of those numbers, Research Metrics now expects first quarter retail earnings to rise 10%, up from an earlier forecast of 8.7%.

Combining the two months of March and April, same-store sales are expected to gain 2.8%, “well below” the average increase for the last 14 months of 4.7% growth. The 2012 growth is also lower than either 2010 (5.2%) or 2011 (4.6%). Some of this year’s drop is attributed to the much higher comparable sales in 2011, as we’ve already noted.

The SPDR S&P Retail ETF (AMEX: XRT) posted a new 52-week high this morning of $63.03 before giving some of the gain back to trade at $62.03 at about 12:30 p.m. The ETF has gained nearly 18% in the past 12 months though it is down slightly for the year-to-date.

Paul Ausick

A number of large retailers have announced holiday hiring plans, including Target Stores (NYSE: TGT), which plans to hire more than 92,000, Macy’s (NYSE: M), which expects to hire 78,000 for its Bloomingdale’s and Macy’s stores, and Kohl’s (NYSE: KSS), which expects to hire more than 40,000 temporary employees. Both Macy’s and Kohl’s say that this year’s planned hirings are about 5% more than last year’s totals. Target’s planned hiring is slightly higher than last year’s pace. JCPenney (NYSE: JCP) expects to hire about 35,000 additional temporary workers this year.

On the downside, Best Buy (NYSE: BBY) has said it expects to hire about 15,000 seasonal workers, about half its 2010 total. Sears Holdings (NASDAQ: SHLD) and The TJX Companies (NYSE: TJX) are expecting seasonal hiring to be flat with last year. Privately held Toys “R” Us has plans to hire about 40,000 seasonal employees, down from 45,000 brought on a year ago.

The holiday season shopping forecast has softened since the early part of this year, with national retail sales expected to rise about 3%, down from initial projections of a 5% hike. Retailers also expect to see less foot traffic, which is forecast to fall by -2.2%.

The sales forecast has led about a quarter of U.S. retailers to cut back on their holiday season hiring. Another two-thirds are expecting hiring levels to be comparable with last year, and only about 10% expect to hire more employees than last year.

Lack of enthusiasm for adding new employees is likely due to higher costs, including higher rent, energy, and wholesale costs. The conservative approach to hiring could also be a reflection of general economic uncertainty in the U.S. Headlines about falling stock markets cause fear among consumers about job security and cash flow. And if the federal government appears to be tilted toward adopting an austerity package that includes more job losses, consumers could keep a much firmer grip on their wallets.

The stock market is down about -1.5% in the first 15 minutes of trading this morning, with Sears bucking the trend. Sears shares are up about 4.75%, at $59.97, in a 52-week range of $51.14-$94.79. Target shares are up about 1.4%, at $48.45, in a 52-week range of $45.28-$60.97. Shares of Macy’s are down about -1.7%, at $24.94, in a 52-week range of $21.69-$30.62. The SPDR S&P Retail ETF (NYSE: XRT) is down about -0.8%, at $44.09, in a 52-week range of $41.73-$56.44.

Paul Ausick

Costco led the pack, reporting an August same-store sales gain of 11%, including sales in its joint venture in Mexico. Analysts had been expecting a gain of 9.3%. Excluding gasoline sales and the effects of currency exchanges, sales rose 7% in August. Costco also announced that its CEO would step down effective January 1st and be replaced by the company’s current president and COO.

Target’s same-store sales rose 4.1% in August, beating a consensus estimate of 3.5%. The company said that back-to-school and back-to-college sales were in line with expectations. Total sales rose 5.4% in the month.

Macy’s posted a year-over-year gain in August of 5%, beating expectations of a 4.5% increase. The company also noted that it would have added an additional 1.5% in sales if not for store closings and lower customer traffic due to the hurricane.

Saks posted a gain of 6.1% in same-store sales, lower than an expected rise of 7%. Like Macy’s, the company said the effects of Hurricane Irene lowered sales by 1.5%.

Nordstrom’s same-store sales rose 6.7% compared with the same period last year. Analysts were expecting a gain of 4.8%.

J.C. Penney reported a -1.9% drop in same-store sales in August and a total sales drop of -4.5%. Penney’s also blamed Hurricane Irene for poor sales in the last week of August.

Kohl’s also reported a same-store sales drop of -1.9% for the month. Analysts were expecting an increase of 1.6%. The company said that customer traffic was lower in August. It’s counting on new Jennifer Lopez and Marc Anthony brands for a pick-up for the rest of this year. Perhaps the company missed the news of the couple’s pending split.

Gap stores reported same-store sales down by -6% in August, worse even than expectations of a -3.8% drop. Deep discounts and higher production costs have been plaguing the company.

The Wet Seal posted an same-stores sales increase of 5.5%, higher than the consensus expectation of 4.2%. The company also noted higher margins on its back-to-school offerings.

The Buckle, another teen-oriented retailer, posted a jump of 8.3% in same-store sales in the month of August. Analysts were expecting a rise of 4.5%. Total sales for the company rose 11.9%.

Zumiez reported same-store sales growth of 4.3% for August, just missing expectations. But the company reported second quarter earnings at the same time the beat consensus estimates. Unfortunately the company lowered its forecast for the third quarter, and that is hurting the stock in the first hour of trading this morning.

Zumiez’s shares are off nearly -2%, at $18.15, in a 52-week range of $15.00-$33.13. Other losers this morning include Gap stores, off -3% at $16.01, in a 52-week range of $15.26-$23.73, and J.C. Penney, down about -1.5%, at $26.24 in a 52-week range of $20.20-$41.00.

Costco shares are up almost 2%, at $80.05 in a 52-week range of $57.65-$83.95. Macy’s stock is up more than 2.5%, to $26.63 in a 52-week range of $19.66-$30.62. The SPDR S&P Retail ETF (NYSE: XRT) is down about -0.4%, at $49.39 in a 52-week range of $37.49-$56.44. The Retail HOLDRs (NYSE: RTH) is up about 0.15%, to $104.34, in a 52-week range of $89.99-$114.38.

Paul Ausick

Big Lots reported adjusted EPS of $0.52, beating the consensus estimate of $0.44, and revenue of $1.17 billion, barely above an estimate of $1.16 billion. The company also raised its full-year EPS guidance to $2.80-$2.90, the top of which is in-line with a consensus estimate of $2.89. The company’s shares have gained about 7% in the past 12 months.

Several of its competitors, and near-competitors, have posted similar 12-month gains. 99 Cents Only Stores (NYSE: NDN) and Tuesday Morning Corp. (NASDAQ: TUES) fall into the same range. Dollar General Corp. (NYSE: DG) shares have risen about 15%, and Dollar Tree, Inc. (NASDAQ: DLTR) shares have jumped 50%.

Since the beginning of the year though, Tuesday Morning shares are down nearly -30% and Dollar Tree’s gains have grown by less than half as much. The biggest portion of these stores’ 12-months gains came during the 2010 holiday season.

A March buyout offer for 99 Cents Only from Leonard Green & Partners gave the company’s shares a boost in March, and there is a rumored counter-offer coming from Apollo Global Management. Tuesday Morning announced a $5 million share buyback program a couple of days ago to give its share price a needed boost. Seasonal impacts are also having an effect.

As the back-to-school season nears its end, the stores have jumped back from a dive at the beginning of the month related to the downgrade of US debt. Solid back-to-school sales could put these stores in a position to reap even larger benefits for the coming holiday season.

Face it, the US economy is not going to get any stronger between now and the end of the year. The deep discounters aren’t going to lose any customers to pricier competitors like Wal-Mart Stores Inc. (NYSE: WMT) or Target Corp. (NYSE: TGT). If anything, the dollar stores will gain customers.

Big Lots shares are down about -0.25% in the early afternoon, at $32.29, in a 52-week range of $27.82-$44.44. 99 Cents Only shares are down nearly -1%, at $18.25, in a 52-week range of $14.32-$20.75. Tuesday Morning’s shares are off more than -2.5%, at $3.72, in a 52-week range of $3.38-$5.93. The SPDR S&P Retail ETF (NYSE: XRT) is down more than -2%, at $46.10, in a 52-week range of $35.79-$56.44.

Paul Ausick

The store offered upgraded guidance for the third quarter and the full year. Third-quarter EPS is forecast at $0.70-$0.75 and full-year EPS is set at $4.15-$4.30. Analysts had estimated third-quarter EPS at $0.71 and full-year EPS at $4.13.

Wal-Mart Stores Inc. (NYSE: WMT) reported earnings yesterday, and US same-store sales were down by nearly -1%. Target’s same-store sales grew 3.9% in the quarter. Same-store sales at Costco Wholesale Corp. (NASDAQ: COST) rose 5% in July, excluding gasoline sales. Yesterday Home Depot Inc. (NYSE: HD) reported second-quarter same-store sales rose 3.5% and Lowe’s Cos. (NYSE: LOW), like Walmart, reported same-store sales down by -0.3%.

The variation in sales leads to a couple of observations. First, and most obvious, is uncertainty. Retailers don’t know what to expect — will there be more customers or fewer; can we hold our margins and still attract customers; how can we get customers to spend more per trip? Quarterly results indicate that Walmart’s strategy of offering low prices is not going to move the needle much. Walmart’s customers can’t afford to spend more given the precarious state of the economy, and the dollar stores continue to pick off customers at the low end of the scale.

Target’s customers were spending more per transaction — 3.5% more according to the earnings report. In the year-ago quarter, the average transaction fell -0.8% compared with 2009. Target’s customers simply have more money to spend than do Walmart’s.

A second observation is that some of the companies’ management teams may be more effective at getting ahead of the economy. Home Depot, as we pointed out, consolidated earlier and faster than Lowe’s, which closed seven stores earlier this week.  Walmart’s Sam’s Club stores are doing quite well, but the company is spending a lot of time and effort on getting into large metropolitan areas, either by building new, smaller stores or by seeking acquisitions. So far the results are mixed for Walmart.

Year-to-date, the only one of these retailers with a positive change in share price is Costco. Lowe’s share price is off -20%, and Target’s is down about -18%. The SPDR S&P Retail ETF (NYSE: XRT) and the Vanguard Consumer Discretionary ETF (NYSE: VCR) are both down about -3% as well.

In pre-market trading this morning, Target’s shares are up nearly 6% from yesterday’s closing price of $49.37, to $52.30, in a 52-week range of $45.28-$60.97.

Paul Ausick

Retail stocks are cyclical, and the retail funds we looked at are themselves cyclical. Results are highly correlated to consumer spending, which is a function of consumer confidence and solid employment numbers with good wages.

We based our screen on a fund’s exposure to Macy’s Inc. (NYSE: M), which yesterday reported 6.7% same-store sales growth for June compared with June 2010. Macy’s also raised second quarter and full-year guidance. The company itself carries a forward P/E of 10.7 and a price/book ratio of 2.3. It posted a new 52-week high today, to put is range at $16.93-$30.58.

The SPDR S&P Retail ETF (NYSE: XRT) holds total assets of $672 million and a share price of $56.34, a new 52-week high compared with a low of $34.92. The tracks an equally weighted index that is rebalanced every quarter, which adds weight to small- and mid-cap holdings. The fund does hold some defensive stocks (Wal-Mart, Costco, Walgreen), but the majority of holdings are discretionary. Home improvement stores such as Home Depot and Lowe’s are not included in the index, and thus, not in the fund. XRT is also quite liquid, turning over nearly 11 million shares daily. The fund carries a 4-star rating from Morningstar.

The Vanguard Consumer Discretionary ETF (NYSE: ETF) holds assets valued at $387 million, and it too set a new 52-week intra-day high yesterday of $68.00, compared with yearly low of $45.50. The fund passively invests in the MSCI US Investable Market Consumer Discretionary Index, and currently owns 369 stocks. It too holds defensive stocks like McDonald’s, the fund’s top holding, and unlike XRT also owns home improvement stocks Home Depot and Lowe’s in its top ten holdings. The fund’s expense ratio is a very low 0.24%, but the shares are not very liquid, trading around 62,000 on an average day. The fund gets a 3-star rating from Morningstar.

The First Trust Consumer Discretionary AlphaDEX (NYSE: FXD) holds $644 million in total assets, and like the other retail funds posted a new 52-week intra-day high of $22.85 yesterday. The fund owns 124 stocks and tracks the StrataQuant Consumer Discretionary Index. It’s largest apparel retailer is Gap, Inc., which has not been a good performer year-to-date, returning a loss of nearly -16%. It’s largest defensive holding is Wal-Mart, which ranks fifth in the fund’s portfolio, two notches down from Gap. FXD trades an average of 236,000 shares/day and its expense ratio is rather high, at 0.70%. The fund has a 3-star rating from Morningstar.

The Rydex S&P 500 Pure Value ETF (NYSE: RPV) holds $125 in total assets and closed within $0.55 of its 52-week high yesterday. The fund tries to replicate the performance of the S&P 500 Pure Value Index. It hold just over 10% of assets in consumer discretionary stocks and another 14% in consumer staples defensive stocks. Its largest holding is Dean Foods, a defensive stock that has return more than 40% year-to-date. Its largest holding in a consumer cyclical is Gamestop, which has returned about 19% year-to-date. The fund trades an average of about 31,000 shares a day and its expense ratio is a low 0.35%. The fund carries a 2-star rating from Morningstar.

As we’ve already noted, these funds are cyclical and are heavily influenced by factors such as employment, gasoline prices, and weather. But as the outlook for retail sales is picking up, the second half of 2011 could lead to gains in these funds. XRT, with its bias toward small- and mid-cap holdings and its high liquidity, perhaps offers the best chance of taking advantage of an uptick in retail sales.

Paul Ausick

Our current screen yielded nine retailers in different retail segments.  Apparel, discount stores, groceries, home improvement:  they are all there.  We list the companies in order of the size of the dividend yield in descending order: The Home Depot, Inc. (NYSE: HD); Foot Locker, Inc. (NYSE: FL); Wal-Mart Stores Inc. (NYSE: WMT); Staples, Inc.  (NASDAQ: SPLS); Target Corp. (NYSE: TGT); Safeway Inc. (NYSE: SWY); Gap Inc. (NYSE: GPS); Lowe’s Companies Inc. (NYSE: LOW); Nordstrom Inc. (NYSE: JWN).     Lastly, there is the Retail HOLDRs (NYSE: RTH) and the SPDR S&P Retail (NYSE: XRT) for investors consider.

The nine companies pay dividends ranging from 2.1% to 2.9%.  Beyond attractive dividends,  these companies boast additional positive characteristics including: EPS growth this year exceeding 12%; forward PE’s lower than 13; price to free cash flow (P/FCF) per share lower than 28.50; returns on Equity (ROE) greater than 10%.  All boast good liquidity with an average daily trading volume exceeding 2 million shares. As you can see, something for value investors, income investors, and others.

Except where otherwise noted, the source for all performance and financial data is Finviz.com. There is one other thing for income and retail-sector investors to remember.  Some of these have much more implied upside to what Wall Street is targeting.  We evaluated the implied upside to Thomson Reuters analyst targets so that we could weed out those companies trading above their implied value.

The Home Depot, Inc. (NYSE: HD) pays a 2.9% dividend with an earnings-to-dividend payout ratio 45.7%. Home Depot’s  shares closed at $34.53 Friday. Its 52-week price range is $25.82 to $38.82.  Home Depot has an implied upside of about 19% to its consensus Thomson Reuters analyst price target of $41.04. The most recent upgrades in both Lowe’s and Home Depot got it names as one of the “Top 10 Analyst Calls of the Week” this last weekend as well.

Foot Locker, Inc. (NYSE: FL) pays nearly 2.9% in dividends with a payout ratio of 46.6%.
The company’s forward PE is a modest 12.8, but is among the highest among this group of retailers.  At 10.2%, its return on equity (ROE) is among the lowest on this list.  Foot Locker’s  shares closed at $22.82 Friday.  Its 52-week price range is $11.30 to 25.50. Foot Locker, Inc. has an implied 22% to its consensus Thomson Reuters analyst price target of $27.82.

Wal-Mart Stores Inc. (NYSE: WMT) pays almost 2.8% in dividends with a payout ratio of 29.2%.   Wal-Mart’s  shares closed at $52.82 Friday. Its 52-week price range is $46.59 to 57.12.

Wal-Mart Stores Inc. has an implied upside of about 15.5% to its consensus Thomson Reuters analyst price target of $61.00.  For whatever it is worth, that $61.00 price has only been hit once in the last 5-year period.  Wal-Mart is also in that buyout plan which we have argued could even be large enough to eventually almost take itself private if maintained year in and year out.

Staples, Inc.  (NASDAQ: SPLS) pays a 2.6% dividend with an earnings-to-dividend payout ratio 29.7%.  The share price of Staples closed at $15.35 Friday. Its 52-week price range is $14.75 to 23.63. Staples has an implied upside of about 28% to its consensus Thomson Reuters analyst price target of $19.71.

Target Corp. (NYSE: TGT) pays almost 2.6% in dividends with an earnings-to-dividend payout ratio of 24%.  Target’s  shares closed at $46.53 Friday. Its 52-week price range is $46.15  to  60.40. Target Corp. has an implied upside of about 28% to its consensus Thomson Reuters analyst price target of $46.99.