Retail Sales Barely Beat Reduced Estimates (TGT, COST, GPS, SKS, JWN, ANF, JCP, RAD, HOTT, WMT)

Overall, about two-thirds of US retail stocks are showing some profit gains and about one-third are not. Some of the winners in the May same-store sales sweepstakes are Target Corp. (NYSE: TGT), Costco Wholesale Inc. (NYSE: COST), Gap Inc. (NYSE: GPS), Saks Inc. (NYSE: SKS), and Nordstrom Inc. (NYSE: JWN). The losers among retail stocks in May include Abercrombie & Fitch Co. (NYSE: ANF), J.C. Penney Co. Inc.(NYSE: JCP), Rite Aid Corp. (NYSE: RAD), American Eagle Outfitters (NYSE: AEO), and Hot Topic Inc. (NASDAQ: HOTT).

Retailers aiming at the teen market fell more than expected in May, following a similar decline in April as well. Abercrombie’s and American Eagle’s sales fell 3%, while Hot Topic sales fell an unexpectedly high 9%.

Rite Aid sales fell 1.7% and total revenue at the company’s 4,767 stores was off by 2.7% in May. J.C. Penney revenue fell 1.8% in May.

Among the winners, Costco sales jumped 9%, but the average estimate from Thomson Reuters was for Costco sales to leap by 9.7%. Target sales climbed 1.3%, Gap sales were up 1%, Saks sales were up 5.8%, and Nordstrom sales rose 3.7%, considerably less than estimates of 4.8%.

The overall sales gain in May was 2.6%, compared with final estimates of 2.6%, which had been reduced from around 4% at the beginning of May. Cool weather and the calendar effect of having Memorial Day fall in the June reporting period get most of the blame for the reduced sales numbers.

Wal-Mart Stores, Inc. (NYSE: WMT) does not report monthly sales, but is trying to boost sales in its Sam’s Club stores by selling a Plus card membership which allows the member to go to a kiosk inside the store and print out a list of deals based on that member’s own shopping history. Essentially, Sam’s Club is providing personal prices for each of its members. Early indications are that the kiosk program conversion rate is between 20%-30%, an order of magnitude better than the 1%-2% printed coupon conversion rate. This could turn into a real money-maker for Wal-Mart.

But making money is getting harder in upscale stores, which are getting some of their old customers back, but are missing those “aspirational” buyers who would buy items like $1,000 handbags and $2,000 wrist watches. The purchases were financed and when the credit card bills got too big, many people would re-finance the house to pay off all the bills.

Those days are gone. Luxury stores have to go back to their historical customer base — high net worth individuals who pay cash. These customers typically demand more service and higher-quality goods, both of which will cost these retailers more.

Retail sales are recovering from year-ago levels, but slowly and partly due to the very low levels of last year’s sales. Unemployment has to come down and wages have to rise if retails are going to get good steady growth again. Neither has happened, and that’s what adds to the chill in retail.

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