Chain store retails sales were released this morning and most of them were quite disappointing. Of the twenty-two stock that we track monthly sales on, only 4 beat with one coming in as expected, all of the rest showed worse results than expected. Among the few successes, department stores Macy’s (M) and Nordstrom (JWN) both grew sales faster than analysts had predicted. Notable retailers that lagged expectations by a wide margin include Target (TGT) and teen-focused retailers like Abercrombie (ANF), Aeropostale (ARO) and Hot Topic (HOTT).
The April results were worse than expected, but they were not a huge surprise by any means. The Easter holiday came early this year and most of those sales were recorded in the month of March. In addition, the weather showed a dramatic improvement in March which encouraged shoppers to get out of the house and spend some money. We wrote about the March sales results in a piece about a month ago (Don’t Discount the American Shopper) where we said,
While we are pleased to see the positive results from retailers, one must wonder how sustainable are sales gains in an environment with credit contracting and still 1 in 6 Americans either unemployed or underemployed. Comparisons will become more difficult to beat later in the year as consumers started to emerge from the crisis mentality and frugality in the second half of 2009…
When April sales results are posted, comparing the combined March and April sales this year to last will give a more accurate picture of where the consumer stands as it will neutralize the affect of Easter. For now, we are content to see March was far better than expected, and that should ease some fears about the resilience of the consumer in the face of a still difficult environment. – The Razor’s Edge 4/8/2010
In March, 90% of companies reporting sales results topped expectations, where as the number was closer to 19% (excluding Costco (COST) who reported inline with expectations). As we suggested a month ago, these results really should be combined in order to get a more comparable picture to a year ago where April benefited from many of the same tailwinds. We think that even with the bad results in April the consumer has spent better than we expected. Considering the difficulties in the market right now as credit contracts and long term joblessness persists as a huge problem, consumers are at least creeping back to the malls.
To be clear, this is not a wholesale endorsement of retail-related stocks because most have enjoyed a great amount of appreciation since a year ago. In our opinion, many of these stocks are too hot based on the only tepid recovery in consumer spending. Furthermore, the market is demonstrating some fear that has been largely absent for the past 14 months, which means an investor must think twice before devoting more capital to stocks in this market climate.