Retail Sales Warming up Along with Weather

By George Leong, CFP, MBA — The Leong Side of the Market column

Spring is here, and the warmer-than-average weather has helped drive consumers to the stores. So far, 12 retailers have reported sales that beat estimates, according to Thomson Reuters Corporation. The news is encouraging. The March monthly sales data will be important to watch, as they could be the start of a new trend and help drive the economic renewal.Retailers that posted double-digit increases in same-store sales include Target Corporation (NYSE/TGT) and The Gap, Inc. (NYSE/GPS).
Children’s retailer The Gymboree Corporation (NYSE/GYMB) increased its earnings per share estimate for its first quarter. The news is good, as the sales growth now appears to be spreading to the specialty stores, not only the mass-market discount chains and big-box stores.However, I’m not confident enough to say that a reversal has occurred in retailing. The reality is that the March sales may have been an aberration and largely driven by an early Easter and warmer shopping weather. I sense that consumers are still waiting for discounts before purchasing. I rarely buy anything that is not marked down at least 25% unless I really need it. Other consumers are probably also looking for major discounts.The key is to look for same-store sales growth in retailers that sell non-essential goods. Increases here could mean that consumers are spending on goods and services that are non-essential. These include electronics, appliances, furniture, autos and other big-ticket items. Bellwether electronics stock Best Buy Co., Inc. (NYSE/BBY) reported strong fourth-quarter results in which it surpassed analysts’ estimates. Best Buy is the best-of-breed in consumer electronics. The buying of electronic gadgets is a decent indication of improved consumer behavior toward spending. Watch for the Durable Goods Orders report to get an indication of how sales of big-ticket items are doing.My favorite area in the retail space continues to be the discounters and big-box stores. The big-box stores are now selling a broad range of electronics and are adding to their product lines. This will offer consumers a one-stop place for shopping. The king of cheap, of course, is Wal-Mart Stores, Inc. (NYSE/WMT), which continues to be the best-of-breed in retailing due to its global footprint, massive buying ability and discount prices.

As I have said on numerous occasions, we need to continue to see jobs created and for housing prices to halt their slide and reverse to the upside. The surge in housing prices was a catalyst in the consumer-spending boom leading up to 2008, when homeowners borrowed heavily on their surging home values to spend excessively on travel, renovations and other big-ticket items. Unfortunately, this is no longer the case, as home prices have plummeted, and homeowners are fighting hard to keep their homes. Retail growth will be more sustainable once jobs and housing recover.