We all know that consumer spending and the performance of the retail sector dictates the direction of economic renewal in the U.S. It’s quite simple—if consumers spend, the economy and the retail sector will grow.
Now, with home prices nationwide continuing to rise and the jobs creation picture showing signs of improvement (though it is still slogging along), the end result has been a rise in consumer spending, which has helped to drive the retail sector.
Spending on durable goods is a good indicator on how positive consumers are in the retail sector, as this spending is on nonessential goods. So when consumers spend on this group, you know there’s some confidence in the overall economy. In April, durable goods surged 3.3%, which was well above both the Briefing.com estimate calling for a 1.5% decline and the 5.9% decline in March. On an ex-transportation basis, durable goods increased 1.3%.
Retail sales edged up 0.1% in April, which was above both the Briefing.com estimate calling for a 10.7% drop and the 0.5% decline in March.
In May so far, 10 U.S. retail chains have reported, and the results have been good, with the key same-store sales surging up 3.9% versus the 3.7% estimate. (Source: Wahba, P., “Retailers’ sales rise in May, spending stays moderate,” Reuters, June 6, 2013.)
Results from the big-box stores continue to be healthy in the retail sector.
Market leader Costco Wholesale Corporation (NASDAQ/COST) reported sales growth of seven percent in May, while its key same-store sales increased by five percent.
A big surprise was delivered by American Apparel, Inc (NYSE/APP), which reported an impressive 10% surge in its same-store sales in May. (Read more on American Apparel in “A Real ‘Made in the USA’ Retail Stock That Supports Your Portfolio, Not Sweatshops.”) American Apparel remains an excellent speculative play that has moved up over 10% since my review. The best thing about this company is that its clothes are all manufactured in the U.S., which will cater to the patriotic looking for real “made in the USA” stocks.
The stock chart of the S&P Retail Index below shows the steady climb of the retail sector since the beginning of the year; the chart is also indicating that the retail sector is currently facing some stalling.
Chart courtesy of www.StockCharts.com
Much of the consumer buying has been largely due to the availability of cheap money and financing. People are saving less, given the low yields, and are spending more.
In my view, the retail sector continues to show promise, but the easy money has been made. For the aggressive trader, you need to consider contrarian retail opportunities, including bebe stores, Inc. (NASDAQ/BEBE), Chico’s FAS, Inc. (NYSE/CHS), Ascena Retail Group, Inc. (NASDAQ/ASNA), and Saks Incorporated (NYSE/SKS).