Retailer Sales Rev Up, Fueled By Costco And Walgreen

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Retailers stayed on the fast track in May with solid sales gains that beat views Thursday for the second straight month. Warmer weather and savory deals prompted consumers to unleash pent-up demand from the winter's lull and shop for spring and early summer seasonal goods.

Sales at stores open at least a year rose 4.6% from a year earlier, according to Ken Perkins, president of Retail Metrics. Fueled by a strong beat fromCostco Wholesale ( COST ), the showing was ahead of analysts' forecasts for a 3.4% gain.

L Brands ( LB ),Zumiez ( ZUMZ ),Walgreen ( WAG ),Gap ( GPS ) andRite Aid (RAD) all beat views.


"The results were decent and reflective of better weather conditions that got consumers out," said Perkins. "Retailers made it worth their while with relatively deep promotions."

During the month, store chains, particularly in the apparel space, offered some very sweet deals, such as 30% to 35% off the entire store, says Perkins.

After harsh weather patterns dampened sales for many retailers in the first three months of the year, chains made a strong comeback in April with a 6.2% rise in same-store sales vs. a year earlier.

That improvement continued into May, says Michael Niemira, chief economist for the International Council of Shopping Centers. He calculates May same-store sales grew 4.6% vs. a year earlier.

"It's hard to argue it was necessarily just a weather story," he said. "Temperatures were about what they were last year. Given that the aggregate monthly same-store sales trend over the last 12 months was about 3.7%, getting a bit of growth above that trend is encouraging. It's reassuring in the broad sense that we're getting this rebound after the winter problems."

Cabin Fever Effect

Pent-up demand or the "deferred spending" from the winter, which began showing up in April and continued into May, is helping to drive the rebound, he says.

"We're also seeing that same type of pattern in the broader economy with a bounce-back after a weak first quarter," he adds. "That reinforces that the consumer fundamentals are good."

Niemira says that comments in recent earnings reports have noted that bounce-back. "That's quite encouraging," he said.

Some improvements in the economy also helped retailers during the month, adds Perkins.

"Consumer confidence was up a little bit, and the labor market has been better the last three months," he said. "So consumers are feeling a little better about their overall situations."

But Perkins cites some major headwinds: "Retailers still have a tough road ahead as they face intense price competition from all of their brick-and-mortar competitors as well as from online players likeeBay (EBAY) andAmazon (AMZN). And a vast majority of consumers are still not seeing wage gains."

Warehouse-club operator and regular top retail performer Costco led the pack in May with a solid 6% gain in total-company and U.S. core same-store sales. The gain was ahead of views for a 4% rise in total-company same-store sales and a 4.9% increase in U.S. core same-store sales. Costco has topped views in four of the first five months of this year.

Top apparel retailer Gap posted a 1% rise in same-store sales Thursday after the close vs. forecasts for a 0.3% rise. That follows a 9% gain in April same-store sales.

Victoria's Secret parent L Brands saw a 3% gain in same-store sales last month, ahead of forecasts for a 2.1% rise. It got a nice lift from its Bath & Body Works stores, which saw a 5% rise in same-store sales for the month.

Action-sports retailer Zumiez turned out a healthy 3.6% increase in May same-store sales, sailing past estimates for a 0.5% gain.

Drugstore operator Rite Aid posted a 3.5% rise in same-store sales for the month early Thursday, topping estimates for a 2.2% increase.

Rival Walgreen saw a 4.4% increase in May same-store sales, ahead of forecasts for a 4.1% gain.

Specialty apparel retailerCato (CATO) posted a 3% gain in May same-store sales, in line with forecasts.

Off-price retailerStein Mart (SMRT) posted a 0.4% rise in May same-store sales, missing views for a 1.2% rise. That followed a hefty 8.9% gain in April same-store sales.

Another miss came from teen retailerBuckle (BKE), which saw a 3.1% drop in same-store sales last month vs. estimates for a 0.3% rise.

Judging June

Niemira estimates that June same-store sales will rise about 3.5% vs. a year earlier. Retailers will be up against slightly tougher comparisons vs. June 2013, when comps rose 4.1%.

Since April and May got a lift from pent-up demand, Niemira sees same-store sales in the summer months growing at between 3% and 3.5% "unless there is some breakout performance in the economic statistics that will cause us to re-evaluate the potential."

Overall, he expects second-quarter economic data to show a rebound of about 3.5% growth in GDP from the 1% decline in the first quarter. Economic growth, he adds, is the "key driver" of the longer-term trend.

Perkins remains cautious about retailers' prospects.

"It's a very difficult environment right now across the board," he said. "It requires them (retailers) to hone their merchandising skills and bring in unique merchandise as well as being very competitive in terms of price points, particularly on commodity-type goods that can be found anywhere else, like basic clothing and small appliances."

Retailers, he adds, will likely remain promotional to drive interest and traffic.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas

Referenced Stocks: COST , LB , ZUMZ , WAG , GPS

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