Old Man Winter appears to be killing the retail sector and the economic renewal. Extreme cold and nasty weather has engulfed about 70% of the country, reaching as far south as Georgia, North Carolina, and Texas, which don’t traditionally experience winter weather.
All that nasty weather means less driving to the malls and shops, which, judging by the numbers, appears to have been the case over the last two months. And if consumers don’t spend, the retail sector hurts and this translates into softer gross domestic product (GDP) growth.
Retail sales contracted by 0.4% in January, which represented the second straight month of declines following a revised contraction of 0.1% in December, according to the U.S. Department of Commerce. The poor showings were attributed to the weather.
With consumers staying at home, we are hearing whispers that fourth-quarter GDP growth could be revised downward from its initial 3.2%.
And while it’s too early to call for the economy to weaken, continued bad weather could mean just that. Now there are, of course, other reasons for the lackluster retail sector metrics.
There’s still a sense that the jobs market continues to be fragile following the creation of a mere 74,000 jobs in December that was blamed on the weather. Yet January was only marginally better with the creation of 113,000 jobs, which was well below the 185,000 estimate.
The jobs numbers are horrible, and unless they start to improve, I expect consumers to continue to feel hesitant about spending in the retail sector.
As I wrote in a previous commentary, investing in the retail sector will be much more difficult this year after some easy money was made in 2013. However, there are some exceptions in the retail sector, such as Michael Kors Holdings Limited (NYSE/KORS), which is still reporting impressive numbers. (Read “Stock Falling, but Rich Still Spending; My Top Luxury Stock Play.”)
The National Retail Federation (NRF) is pretty optimistic towards this year. The researcher estimates retail sales, excluding automobiles, gas stations, and restaurants, could rise 4.1% in 2014, which, in my view, appears to be somewhat optimistic and dependent on a slew of assumptions put forth. (Source: “NRF Forecasts 4.1% Increase In Retail Sales For 2014,” National Retail Federation web site, February 6, 2014.)
The NRF based its growth on strong jobs growth of around 185,000 jobs per month, but I’m not so certain we won’t see any hiccups along the way that will cap the jobs growth.
Areas of the retail sector that I continue to favor are the discount and big-box stores. Some of my favorite stocks are Family Dollar Stores, Inc. (NYSE/FDO) and Dollar General Corporation (NYSE/DG) in the large-cap area, and Five Below, Inc. (NASDAQ/FIVE) and Stage Stores, Inc. (NYSE/SSI) in the small-cap area of the retail sector.
There are also contrarian retail sector plays investors could consider, including. bebe stores, inc. (NASDAQ/BEBE), Chicos FAS, Inc. (NYSE/CHS), and Ascena Retail Group, Inc. (NASDAQ/ASNA).