Sterne Agee analysts Charles Grom, Renato Basanta, John Parke rate Costco Wholesale Corporation (NASDAQ:COST) as a Buy, and examine several other retailers with an eye towards their QTD results.


With the ’13 holiday season now in the rear view mirror, analysts believe several retailers in our coverage group will/could provide an update on either QTD sales or December results. Likely candidates include Costco Wholesale Corporation (NASDAQ:COST), Family Dollar Stores, Inc. (NYSE:FDO), Five Below Inc (NASDAQ:FIVE), J.C. Penney Company, Inc. (NYSE:JCP), M, & KSS – see below for detailed thoughts.

Costco cycling its toughest compare

Costco Wholesale Corporation (NASDAQ:COST) will report December SSS on Thursday morning for the five-week period ending 1/5/14. (Recall we will be hosting the company’s CFO Richard Galanti later that day at CES in Las Vegas.) For December, we are modeling a core comp of ~2-3%, excluding the combined ~150 bps impact from FX/gas. Bear in mind that Costco is cycling its toughest compare of the year in December (+7.9%) – well above the +5.5% average comp it will cycle over the next five months. We expect recent trends to continue, with strength in Softlines and Fresh Foods, and continued weakness in Hardlines – especially as COST cycles a mid- to high-single-digit comp from last year.

Family Dollar’s sales remained choppy

Family Dollar Stores, Inc. (NYSE:FDO) will report 1Q14 EPS on Wednesday AM (1/8; BMO) for the period ending 11/30/13. Analysts see EPS of $0.66, $0.03 below the Street @ $0.69. On the comp front, they think SSS will be down 3.0% for the quarter vs. the Street at -1.9% (guidance = down mid single digits). It’s likely that discretionary sales remained choppy during 1Q/2Q QTD and increased promotional activity may hinder any significant GPM improvement. Overall, analysts forecast EBIT margins declining by 48 bps, with 26 bps of GPM improvement (guid. of +30-40 bps) more than offset by 74 bps of SG&A deleverage.

Five Below’s sales rise

Ahead of the company’s presentation at ICR next Monday (1/13), analysts believe Five Below Inc (NASDAQ:FIVE) could provide an update on holiday sales. Recall that LY, in conjunction with a secondary offering, FIVE provided an update on QTD sales results/adjusted guidance for 4Q12. For 4Q13, they are modeling SSS growth of 6.0%, with overall sales rising 24.4% to $216.0 million.

J.C. Penney showing signs of progress

Similar to recent months, we would expect J.C. Penney Company, Inc. (NYSE:JCP) to provide some color on Holiday sales (likely Tuesday/Wednesday of this week). Notably, analysts are modeling a ~5.0% comp in December, lapping what they believe is a comparison of down ~30.0% last year and following the 10.1% increase analysts saw in November. Recall that November sales results were somewhat uninspiring, in analysts’ opinion, given: (1) last year’s ~40% decline, (2) the company’s much more competitive Black Friday platform this year (earlier openings, heightened promotional intensity, aggressive marketing campaign, etc.), and (3) benefits from lapping Hurricane Sandy early in the month. With that said, although the easiest sales comparisons are now behind us, JCP is showing signs of progress.

Macy’s & Kohl’s sales results

With 4Q13 EPS still some seven weeks away, analysts wouldn’t be surprised to see Macy’s, Inc. (NYSE:M) and/or Kohl’s Corporation (NYSE:KSS) (less so KSS) update investors with QTD sales results. For Macy’s, we are modeling 4Q SSS of 3.4% (vs. 3.9% last year) implying steady trends on the 2-year stack (+7.3%). To this end, they believe M was at the top of its game during the Holiday season, executing well on its Black Friday and Millennials strategies, while benefiting from a cold weather boost to sales. For Kohl’s, analysts model comps of down 1.0% vs. guidance of down 2.0% to flat – a likely scenario given KSS is facing its most difficult comparison of the year (+1.9%) and indications of an “OK” Holiday season out of Menomonee Falls.