Ray of Hope for Retailers

The key retail-shopping season is in full gear and so far there has been mixed news. In a survey by Thomson Financial on 43 retailers, about 22 retailers failed to meet estimates for same-store sales, while 19 beat sales estimates and two were inline.

Yet some optimism surfaced on Thursday, as it appears retail sales numbers may not be as horrible as many believe. According to the Commerce Department, retail sales data in November reported the largest increase in six months. Headline retail sales surged 1.2% in November, double the estimate of 0.6% predicted by economists and well ahead of the 0.2% increase in October. The core retail sales number that excludes auto jumped 1.8% in November, well above the 0.6% estimate.

The numbers tell us that consumers are ignoring the credit and housing market concerns and heading out to the malls and stores to buy. Big-ticket items such as appliances and furniture jumped, but the sale of autos continued to struggle. Even the higher price of gasoline at about $3.00 a gallon is failing to stop consumers from heading out. This is a positive sign if the December numbers continue to be strong.

For retailers, the number was positive and now all are hoping for similar strong results in the December, the most important month for retailers. This could make the difference between a bad year and good year in some cases.

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But, even in spite of the numbers, I’m not ready as of yet to jump onto the bandwagon, as the risk still out weighs the potential at this point in my view. If you are holding retail stocks, you could continue to write some covered call options on your stocks to generate some premium, as the upside is still questionable at this stage. By doing so, you can reduce the overall average unit cost of the stock.