The first quarter’s gross domestic product (GDP) growth was muted. Retail sales were also soft in April.
The core reading showed spending contracted by 0.1% in April after 1.3% growth in March.
Of course, economists are not concerned, suggesting the first-quarter retail sales will rise.
The winter weather may have wreaked havoc with consumer spending in the retail sector, but it’s now show time; the retailers need to begin to deliver as the weather warms up.
My top rates in the retail sector continue to be the discounters and, oddly enough, the high-end luxury-brand stocks, given the amount of wealth created among the top one percent.
In the luxury area, vying for the “Best in Breed” are Michael Kors Holdings Limited (NYSE:KORS) and Tiffany & Co. (NYSE:TIF). I also like Coach, Inc. (NYSE:COH) as a contrarian pick in the retail sector.
In the discount segment, Costco Wholesale Corporation (NASDAQ:COST) is one of the top stocks. I also like discount stocks Family Dollar Stores, Inc. (NYSE:FDO) and Dollar General Corporation (NYSE:DG).
The discount area has also been impacted by the weather, but it remains a top area in the retail sector.
If you are looking at the department stores, the top stock is Macy’s, Inc. (NYSE:M), which is probably the best-managed and top-performing company among the department stores in the retail sector.
Macy’s just reported a first quarter in which it beat on earnings per share but fell short on sales.
The results show the apprehension to spend at this time.
A plus is Macy’s announcement that it would buy back up to another $1.5 billion in common stock, increasing its buyback to $2.5 billion.
This will help add some support to Macy’s, while reducing the number of shares used in the per-share calculation.
A dog in the retail sector that I continue to dislike is department store J. C. Penney Company, Inc. (NYSE:JCP), which is no Macy’s. J. C. Penney is an inferior investment that I wouldn’t be touching.
The company brand may be iconic in America, but that’s about it.
J. C. Penney has a massive $4.08 billion in net debt, which is much larger than its prevailing market cap of $2.7 billion.
It’s a tale of two different stocks; while Macy’s looks to accelerate its sales, J. C. Penney is simply trying to keep afloat and avoid a potential bankruptcy, which could still happen if things don’t turn around soon.
This article is brought to you courtesy of George Leong from Profit Confidential.