For Retail, Stick With Best-in-Class

 | Nov 14, 2013 | 10:30 AM EST
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Going into the third-quarter earnings season, investors had little to cheer about in the retail sector -- other than low expectations. After all, foot traffic hit the wall in the second quarter, and fall promotions this third quarter imply margin pressure that will give you a 2008 flashback.

Macy's (M) surprised the Street Wednesday, blowing away comparable-sales expectations and forcing investors to revisit the question of whether the consumer has checked out. The department store is not the first to give us a sigh of relief this quarter. Recently, L. Brands (LTD) reported earnings will come in at the high end of guidance, while TJX (TJX) raised guidance. Even Aeropostale (AEO), in the dreaded teen space, put in a pre-earnings announcement that was a big sigh of relief. Ralph Lauren (RL) also suggested there was some momentum in the current business.

Before you jump back into consumer stocks across the board, let's consider what these companies have in common: They are all best-of-breed. With a flat pie, are these companies simply winning share? By the end of the day today, we will have a pretty good idea, as Kohl's (KSS), Nordstrom (JWN) and Wal-Mart (WMT) are all due to report.

My gut says retail this holiday will continue to be a zero-sum game -- which is why investors should stick with best-in-class: TJX, L. Brands, Macy's and Nordstrom.



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