April retail sales numbers poured in on Thursday, and overall they were quite good. Standouts included Wal-Mart (NYSE:WMT), Costco (Nasdaq:COST), and teen retailers, while some came in worse than expected including Target (NYSE:TGT). The overall numbers gave some hope regarding the health of the consumers, but many indications point to cost-conscious buyers who are trading down when shopping, even for necessity products.
Big Box of Money
Discount retailers surprised the market with impressive sales numbers for the month of April. Wal-Mart, the nation's largest retailer, reported same store sales increase of 3.2% excluding fuel sales. Analysts on average were expecting sales to increase 2.1%, while Wal-Mart had projected a 1-3% gain. Comparable sales at Wal-Mart's namesake stores increased 2.6%, and the company saw its wholesale club, Sam's Club, increase same store sales by 6.6%, without fuel.
The wholesale clubs did well across the board. Costco reported an 8% increase in same store sales excluding fuel, while BJ's Wholesale (NYSE:BJ) reported a 12.3% increase. The sales showed strength in all three of the discounters, but even when stripping out the companies' fuel sales, the stores are still getting a lot of benefit from food inflation. On the disappointing side, Target reported same store sales increase 3.1%, a disappointment compared with analyst expectations of a 4.5% rise. Target sells more discretionary-type goods to slightly higher income consumers compared to the companies mentioned above. This indicates consumers are trading down in a slow economy. (For further reading on this, see Using Consumer Spending As A Market Indicator.)
Teens Just Don't Get It
Comparable sales at teen clothing retailers were better than expected. Abercrombie & Fitch (NYSE:ANF) reported sales increased 6%, much better than expectations of 2%, according to Reuters. American Eagle (NYSE:AEO) saw sales up 2%, while analysts expected a decrease, and Aeropostale (NYSE:ARO) blew away 7.1% expectations with 25% growth in sales. The company raised guidance as a result. After teens shied away from stores in March, they came flocking back to get their summer gear in April. I think this is a result of a late start to warm weather, and also shows that teens simply are not as in tune with the economy. The results were impressive, but I would watch for parents to start reeling in their kids spending.
Also high-end store Saks (NYSE:SKS) saw sales increase 23.9%, absolutely blowing away estimates of a 1.1% rise. Although many retailers reported their sales were largely driven on discounted items, suggesting that even rich consumers may be getting more cost conscious. While this is some surprisingly good headline news overall, I think when digging deeper these reports add up to some concerns for the overall economy. Discounters will continue to do well, as consumers trade down and will need to continue buying staple products. I think the teen retailers could hurt moving forward if and when cash strapped parents put a tighter leash on their kids. I also think the need for high-end shops to drive sales with discounts indicates a potential slowing of affluent consumers as well.
Bottom Line
Retail sales were better than expected, especially from some big names like Wall-Mart. These reports can help ease some concerns about the U.S. consumer, and should help the overall market a little. However, when digging deeper I think the news still shows troubling signs for the economy, as consumers trade down, spending more on what they need and less on what they want.
To learn more, check out Analyzing Retail Stocks and The Industry Handbook - Retailing Industry.