Kohl's (KSS) pretty much summed up the holiday season. Sales came late and, as a result, discounts were deeper than planned. Translation? For one of the few retailers heading into this not-so-festive retail season with high inventory levels, a big guide down was only a matter of time (KSS guided down 20%).
The good news is KSS was the outlier on the inventory issue as most retailers learned hard lessons last year when bloated inventories resulted in markdowns of as much as 1000 bps. Lower input costs this Q4 will also help soften the gross margin blow delivered by consumers trained to wait for nervous retailers to hit the discount panic button.
December same-store sales were not all bad news. In addition, two weeks of negative calls into holiday numbers put expectations in their proper place. While Target (TGT) comps were below plan at flat, the company will manage to meet the lower end of guidance. Unlike KSS, TGT has managed inventory to reality. The retailer also chose not to dive into the promotional deep end of the pool.
Comps for Macy's (M) increased 4.1% (slightly above expectations) and the two-year trend accelerated vs. November. A minimal guide down did not come as a huge surprise. I am still not sure why the company reiterated guidance after November's miss. With the omnichannel effect just kicking (online up 51.7% in December), some Target-esque creativity (The Week of Wonderful post-Xmas) and a 10x multiple, I am not turning my back on this one for 2013.
Speaking of omnichannel, in addition to M, one of my top three picks for 2013 remains Nordstrom (JWN). The company obliterated expectations by almost 3x yesterday and strength was evenly distributed between rack and full price. Nordstrom has the biggest lead in integrating online and in-store and the omnichannel experience will matter even more in 2013 as customers demand a seamless experience. (Read more here).
JWN is not only about the omnichannel buzzword. Execution in stores continues to drive sales upside. Finally with the potential for rack stores to double by 2016, investors get off-price and luxury for the price of one.
