1 Great Company and 1 to Avoid

As the season comes to a close, we're shutting down the local pools and getting in those last barbecues before fall is upon us. But families aren't the only ones looking to get a bit more out of the fading sunlight. The whole retail sector has shown a burst of strength at the end of the summer, and department stores are no exception. August sales figures are out, highlighting the strong summer that companies have had, and hinting at a strong finish to the year. Here are some of the most important chains to watch throughout the next four months, and my pick of the litter.

Making hay while the sun shines
This week, Costco (NAS: COST) , Kohl's (NYS: KSS) , TJX (NYS: TJX) , and Target (NYS: TGT) all released their August sales performance, and everyone was a winner. Costco was the biggest upset, posting a 6% increase in same-store sales, while analysts had expected a 4.5% rise. That brings same-store-sales growth for the fiscal year up to 7%. Combined with the 9% increase that the company saw in membership fees last quarter, it looks like Costco is going to finish its fiscal year in a great place.

Assuming the current trend continues, Costco should be sharing the limelight with TJX, owners of the TJ Maxx and Marshalls brands. TJX increased same-store sales by 8% in August, which keeps its full-year figure at 8%. That's a great jump for the company, which only realized a 1% increase in same-store sales this time last year. The strong showing allowed the company to update its forecast for earnings this quarter, bumping them to the high end of its already announced $0.56-$0.59 range. TJX attributed the rise in sales to strong foot traffic, which should translate into a sustainable sales growth for the company, and is evidence of some good marketing on its part.

Kohl's managed to stop a bit of bleeding with its August sales. While same-store sales are still down for the year, they rose 3.4% last month. That's good news for Kohl's investors, who are almost three quarters into a lackluster year. Kohl's has been the clear laggard of the four chains, with its stock being the only one that has failed to outperform the S&P 500 in 2012. Based on this most recent sales release, the company still has some work to do in its women's department, which will be key to having a strong end of the year. Most of the growth for August was seen in men's, children's, and footwear.

Finally, Target exceeded analyst expectations, increasing same-store sales by 4%, against a forecast of a 3% rise. That increase pushed up at the end of the month, as customers moved in for back-to-school sales. That should carry over into September, and help the company finish out a good third quarter. With a whole raft of new gaming consoles, tablets, and movies due out before Christmas, Target looks like a good pick to finish off the year.

The bottom line
While all of these companies did well, I'm most excited about the prospects for Target. With Best Buy falling by the wayside, and whole host of new gadgets and electronic toys coming out for Christmas, I think Target is going to be a surprise winner. On top of its electronics position, Target is now making some moves into the fashion world, teaming up with Neiman Marcus for the holidays. I think that's a move that not only builds the Target brand, but could help put a nail in the coffin of ailing J.C. Penney (NYS: JCP) , a retail stock I'd avoid.

J.C. Penney has tried to build its shops-within-a-store idea, and has had some success with the Levi's brand, but companies like Target and even TJ Maxx have outmaneuvered it on branding and selection. I've said it before; J.C. Penney is the store you have to walk through to get to the real mall. Target is a destination all its own. If you like the department store model but you want more international exposure, check out the Fool's top stock pick of 2012. It's a free report, just for our readers, and it has all the details on this great chain just south of the border. Get your free copy today.

The article 1 Great Company and 1 to Avoid originally appeared on Fool.com.

Fool contributorAndrew Marderdoes not own any of the stocks mentioned in this article. The Motley Fool owns shares of Costco Wholesale.Motley Fool newsletter serviceshave recommended buying shares of Costco Wholesale. The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.

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