US retailers' sales beat, but inflation a worry
US retailers warned of rising costs and cautious consumers even as a late Easter boosted sales of clothing and other holiday-related items in April, helping many beat sales expectations.
US retailers warned of rising costs and cautious consumers even as a late Easter boosted sales of clothing and other holiday-related items in April, helping many beat sales expectations.
Gasoline pushing above USD 4 a gallon and a slow recovery in the job market are also likely to weigh on sales for the next several months, with no major events to spur shopping until the key back to school season, analysts said."The consumer has been resilient throughout with spending," said Ken Perkins, president of research firm Retail Metrics. "I don't see a catalyst between now and back to school, though."Same-store sales rose 8.9% at the 25 retailers tracked by Thomson Reuters, compared with expectations for an 8.2% increase. Clothing retailer Gap Inc, for example, posted an 8% increase in sales at stores open at least a year in April, surprising analysts who, on average, had expected a 0.8% drop.At the same time, the company also estimated earnings for the April quarter below analysts' expectations and said merchandise margins were down significantly, with raw materials costs rising more than it expected.Rising costs are pressuring clothing manufacturers, which are trying to pass some of them on to consumers who may not be willing to pay more for items that do not stand out, especially while unemployment remains high. The number of Americans filing for jobless benefits rose to an eight-month high last week."If you don't have differentiated product, and that's one of the big issues that the Gap has at some point, you have pressure on the margin front," Perkins said.One large retailer that missed expectations was J.C. Penney Co, which posted a 6.4% increase in same-store sales, while analysts expected a rise of 8.5%. The company said it expected to report quarterly earnings of about 24 cents per share before items, higher than its previous forecast, but below analysts' expectations.J.C. Penney shares fell 5% in morning trading.Despite the overall sales beat, the Standard & Poor's retailing index was nearly unchanged, since a strong April was already priced into retailers' shares.Through Wednesday, the S&P retail index had risen 15.9% since March sales were reported, compared with a 13.6% increase in the S&P 500.
Good for some
Michael Niemira, Chief Economist at the International Council of Shopping Centers, said only some of the increase was due to the late Easter and that retailer's underlying performance was better than in the beginning of the year."But I think the drag from higher gasoline prices will hold the rate to something closer to a 3-4 percent rise in same-store sales in the near term," Niemira said.The biggest factor boosting sales is Easter, which was on April 24 this year. Last year's holiday, on April 4, moved many holiday-related purchases into March.Gasoline also helped sales at retailers that sold the fuel, but rising prices for it are likely to weigh on discretionary purchases this summer."I paid $4.45 a gallon today," Patty Edwards, chief investment officer at Bellevue, Washington-based Trutina Financial, said on Wednesday. "I'll tell you, that is certainly cutting into my Nordstrom fund."Upscale retailer Nordstrom posted a 7.6% increase in April same-store sales, below the 8.1% rise analysts were expecting. Its shares fell 1.3%.Target Corp's same-store sales were up 13.1%, just below analysts' expectations."Guests continued to be very cautious in their spending leading up to Easter," said Target CEO Gregg Steinhafel.Department-store operator Macy's Inc reported a 10.8% increase, above the 8.1% gain analysts expected.Sales of gasoline helped Costco Wholesale Corp beat estimates, although selling more of it also cuts into the retailer's margins.But Costco also showed the inflation pressures that are weighing on consumers, not only in higher prices for gasoline, but also for groceries as food companies pass on increased costs of ingredients and transportation.For example, fresh food prices were up at mid-to-high single-digit percentage rates, the company said."Costco had the type of April sales performance that captured the very essence of the news flow that dominated during the month: inflation, weak dollar, and a slightly more guarded U.S. consumer," Wall Street Strategies analyst Brian Sozzi said in a research note.Victoria's Secret parent Limited Brands Inc blew through expectations with a 20% increase in April sales, compared with the analysts' average estimate of 12.2%.The company, which also owns Bath and Body Works, raised its quarterly earnings outlook to a range of 37 cents to 39 cents a share, excluding items. It had previously expected 26 cents to 31 cents, and analysts expected 36 cents. Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
