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Takeaway: With retailers behind the revenue eight ball coming out of November, margin risk is elevated headed into an already promotional holiday.

Despite talk of strong Thanksgiving sales, November disappointed as this morning’s Retail Sales confirms with 11 companies missing expectations compared to 5 beats. Simply put, Sandy significantly impacted sales (perhaps the most valid weather related scapegoats in years) putting retailers behind the eight ball headed into December – that’s just reality. While still early in the quarter, if retailers have a shot at hitting 4Q comp outlooks it’s most likely going to come by way of increased promotional activity in what was already expected to be a highly promotional holiday. Enter margin risk.

The other callout is the SSS hat trick with JWN becoming the third retailer in as many months to pull out of the sample along with TGT and KSS. This represents ~36% of the SSS sample withdrawing at year end. The days of this exercise are numbered.

The most notable company specific (negative) callout is KSS. Follow through on strong October sales was critical re the company’s optimistic holiday outlook, but November sales didn’t comply. With in-store inventories up +12% on revenues down -5%, it appears the company is trying to keep margins high. With the rest of retail looking to reaccelerate sales in December after a slow start to the quarter, this puts one of the more aggressive retailers on inventory in precarious shape heading into what is likely to be an even more promotional holiday season.

SSS Hat Trick, JWN Out - SSS Sample