Sector Preview: April same-store sales seen rising

Most major retailers report April same-store sales, or sales in stores open at least one year, on Thursday.

Same-store sales are expected to rise 2.5 percent from a year ago, according to a poll by Thomson Financial.

"Optically, April sales look materially better than March," wrote JPMorgan analyst Charles Grom in a client note on Monday. "However, for the most part, March/April combined results indicate deteriorating trends with traffic and weakness in discretionary categories the key culprits."

In the broadline sector -which includes big-format stores that offer a variety of merchandise -Grom said warehouse clubs likely led the way.

"Strong year-to-date momentum at Costco, BJ's and Sam's affirms our belief that customers are consolidating shopping trips and maximizing dollars spent through the warehouse club channel," he wrote in a note to investors on Monday.

Discounters such as Wal-Mart Stores Inc. are likely to continue to benefit from these trends, as consumers hunt for bargains, pinched by a rising cost of living, a weak housing market and tightening credit.

Banc of America Securities analyst Robert Strasser expects Wal-Mart same-store sales will be at the high end of their guidance of a 1 percent to 3 percent increase, helped by the "middle-tier consumer trading down," he wrote in a note on Monday.

In terms of department stores, Lehman Brothers analyst Robert Drbul said Kohl's and J.C. Penney likely benefited from a strong first half of the month, but Nordstrom was hurt by its exposure to California and Saks' customers shifted toward promotional events.

He said that weather trends were favorable in April, but weather in upcoming months might be an even more important factor for retailers, who continue to see weak sales in seasonal apparel.

"While April (same-store sales) are likely to be positive, given the easy comparisons following the shift of Easter into March from April last year, we believe the environment remains challenging and we remain cautious around consumer spending in the upcoming months," Drbul wrote on a note on Monday.

Same-store sales are a key gauge of a retailer's performance because they measure sales at existing stores rather than newly opened ones

In the specialty sector, Oppenheimer & Co. analyst Roxanne Meyer advised sticking with retailers with "strong product execution and internal catalysts," she wrote in a note on Monday.

That includes J.C. Group Inc., Urban Outfitters Inc. and Aeropostale Inc., Oppenheimer said.

Buckingham Research Group analyst David J. Glick said in a note to investors on Friday that expectations are "relatively high" for April, given an increase in mall traffic during the first three weeks of the month, an extra calendar day due the shift in Easter to March from April and better weather.

"However, we believe that cooler weather and tougher comparisons of week four in April slowed the sales momentum into the end of the month, he said.

Like Grom, Glick said the combined March and April period will likely be negative for most retailers.

"We caution investors not to get carried away by improved April (same-store sales)," he said.