To say that investors are nervous about October's same store sales results would be the understatement of the year. Just this morning, Morgan Stanley put out a note downgrading many apparel companies to "cautious" status and stating that "we expect that "60% of major retailers to post down margins in 2008, with EPS growth of 9% vs. Street at 14%."
Why? Morgan analysts think Wall Street's already lowered expectations for retailers are still too high. Another factor: the drain of the housing slowdown will pull even more on pocketbooks. "Our last real housing recession (90/91) saw retail struggle for over a year despite Fed rate cuts...."
We'll get hard numbers from the companies themselves when they report same store sales results on Thursday.
But here's what is certain: a LOT of stores will blame the weather for soft sales. According to Weather Trends International, October is estimated to rank as the 2nd hottest October in 115 years, possibly breaking the record set 43 years ago.
Why does that matter? Retailers have to meet and/or beat the same monthly sales levels as last year to show that they're growing. Weather-wise, October provides a tough comparison. Last year, October was the 29th coldest month in history which helped stores sell fall gear. But this year, a lot of fall apparel sat on shelves in the midst of what has been a record warm October.
When we get same stores sales results on Thursday, Wall Street will be looking to see just which management teams were able to minimize the impact on inventory and sales results. We'll start to see that investing in retail is becoming more of a stock pickers game than a sector story.
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