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Retailers See Modest Rebound, May Sales Top Views

Posted
6/6/2013 5:26:00 PM
By: Investor's Business Daily
Referenced Stocks:COST;GPS;LTD;TIF;ZUMZ

Retailers snapped back from a sluggish spring with modest May sales gains that handily beat views Thursday as warmer weather and a slightly better economic picture drove a pickup in spending.

But the upper-income consumer led the charge, while the moderate-income consumers kept their purse strings tight amid a lack of job and wage growth.

Sales at stores open at least a year rose around 3.5% vs. a year earlier, says Ken Perkins, president of Retail Metrics. Analysts had forecast a 2.8% gain. It was retailers' biggest monthly comp increase since January.

The better-than-expected showing comes after unseasonably cold weather had chilled spending on spring merchandise the past few months. Warmer weather and a slightly improved economic backdrop gave retailers a lift in May.

"The month's showing suggests retailers rebounded from what was a difficult spring," said Perkins. "It also suggests that consumers are somewhat constrained in terms of their ability to spend. We haven't been able to break out and generate strong revenue growth for a number of months."

The last strong month was January, when comps were up 5% from a year earlier.

He attributes the slower pace of same-store sales to sluggish job growth, the payroll tax increase and less-than-optimal weather.

Spending on the high end has generally held up, he says, but it's become increasingly difficult for retailers that have core customers in the low-to-moderate income range.

"The increase in consumer net worth from rising home and stock prices has made upper-income consumers feel better about their situation, and they've been spending," he said. "The problem is the vast majority of lower- and middle-income consumers are not benefiting from this, and aren't seeing wage gains. Thus, they have not been able to increase their spending levels."

Giant apparel chainThe Gap ( GPS ) was the month's standout with a 7% jump in same-store sales vs. a year ago, sailing past forecasts for a 3.7% rise. Comps at its Old Navy chain rose 9% increase.

Giant warehouse club retailer Costco Wholesale ( COST )was another standout with a 5% increase in comps vs. a year earlier, ahead of views for a 4.4% gain. Costco has consistently been one of the strongest performing retailers in terms of same-store sales growth over the past four years coming out the the Great Recession, says Perkins.

Victoria's Secret's parent,L Brands ( LTD ), saw a 3% rise in comps vs. a year earlier, slightly ahead of forecasts for a 2.9% gain. Victoria's Secret saw a 4% gain in same-store sales.

Of the 11 retailers reporting monthly, action sports retailerZumiez ( ZUMZ ) was the only one that missed views, says Perkins. It posted a 1.1% rise in comps late Wednesday vs. forecasts for a 2.9% gain. But it was up against a tough comparison of a 13.7% gain in comps in May 2012.

Michael Niemira, chief economist at the International Council of Shopping Centers tallies May same-store sales rose 3.4% vs. a year ago.

"The overall performance was decent," he said. "We continue to see improvement."

The "wealth effect" spurred by a rising stock market and increasing home prices helped boost consumer confidence, which increased the consumer's willingness to spend, he said.

Still, the month's showing was "modest," he said. "We're still in a very uncertain environment, and when you look at individual retailers it was an uneven performance."

The group of retailers tracked in May are faring better than the industry overall, he said.

Based on the ICSC's broader all-industry same-store sales metric, the same-store sales number for May would be only a 1.5% gain, he says.

He expects June comps to rise between 3% and 3.5%.

"The climate for spending is OK," he said. "We still need to see stronger and more consistent employment improvement to be really comfortable we have a solid consumer spending trend. Now, it's good, but uneven and choppy and affected by a lot of events. It's a tough environment for retailers."

Perkins says retailers look to be set up for modest, but not strong, growth through the summer.

"Strong jobs numbers could lead to stronger spending, but I don't see that in the offing," he said.

Overall, there continues to be a bifurcation in retail, he adds. In the first quarter the high-end retailers such asTiffany & Co . ( TIF ),Saks (SKS) andMichael Kors (KORS) showed strong same-store sales growth.

But those retailers that have lower- and moderate-income consumer such as variety discountersDollar General (DG),Dollar Tree (DLTR), andFamily Dollar Stores (FDO)lagged with low-single-digit comps, Perkins says.

"There's pressure on the lower- and moderate-income consumer, who doesn't have additional discretionary dollars to spend," he said.