Trader Talk

Mounting carnage suggest time to break from retail

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Is it time to step back from retailers? Maybe, because the damage is broader than just apparel.

Three apparel retailers, all providing guidance below estimates, are following up on similar comments from Express yesterday. These include:

a) Aeropostale also reported a larger than expected loss for the third quarter (Q3), and said Q4 would also have a bigger loss than expected ($0.24-$0.32, versus a loss of $0.08 expected).

Same store sales were down 15 percent year over year. Yes, this is a company with very specific problems (consumers want more "fashion" items rather than "basics", while the company has not transitioned well to those changing demands). That said, they also spoke about ongoing weak consumer spending and a highly promotional environment, the same issues Express spoke about...and that every retailer experienced during Thanksgiving.

b) WetSeal reported a loss of $0.12, in line with recently lowered guidance. Fourth quarter guidance is also below consensus. CEO John Goodman summed up the problem for all retailers: "...we've had a challenging start to the season, reflecting the difficult macro environment and ongoing softness in mall traffic."

c) Francesca's lowered its full-year earnings and revenue guidance to below Wall Street's expectations. The company also provided a Q4 outlook that fell short of analyst estimates. FRAN cut 2013 earnings per share (EPS) to between $1.03 and $1.07 from its previous range of between $1.10 and $1.16; Wall Street sees 2013 EPS of $1.13.

"Boutique transactions during November were below expectations, particularly during the final week," said CEO Neill Davis. "In light of a weaker start to the holiday selling season and the broader retail industry trends reflecting slower traffic in the early start to the holiday, we are adjusting our fourth quarter sales outlook." FRAN reported in-line Q3 earnings and revenues; same-store sales fell three percent.

Retail is very hard to figure: Cramer

The story with holiday retail so far has gone this way: traffic is up, while mobile sales are strong. Sales flat to down, even with heavy promotions.

If you think this is just an apparel story, that might not be the case:

a) Costco is one of the best operators out there. They reported a 2 percent same store sale for November, their smallest increase since 2009 and well below expectations for a 3.5 percent gain.

b) L Brands, maker of Victoria Secret, reported comp store sales down 5 percent, much worse than expectations; their own guidance was down 1 to 3 percent.

c) even Dollar General reported a 4.4 percent comp, below expectations, and guided lower for the full year.

Ken Perkins of RetailMetrics says that so far, there are 41 negative pre-announcements out of the 120 retailers he tracks, with only four positive pre-announcements. And there are still a dozen retailers left to report Q3 results.

So what does this mean? Do you step back from whole retail group? Seasonally, this is the time to sell retailers. It may be more so this year.

By CNBC's Bob Pisani