U.S. retailers posted better- than-expected monthly sales results for a second straight month in April, giving fresh evidence that consumer spending is warming up with the spring weather.
Nearly two-thirds of the retailers that reported April sales at stores open at least a year topped Wall Street estimates and a handful said their first-quarter results, which start landing next week, will be better than expected.
Overall, you are seeing some signs of a return to discretionary purchases throughout different areas of retail, said Barclays Capital analyst Robert Drbul.
He said the shift of Easter into April this year from March last year aided the comparisons, while lower gasoline prices and payroll taxes likely cushioned household budgets.
According to Thomson Reuters' revenue-weighted same-store sales index, overall same-store sales rose 1.2 percent, surprising analysts who expected a drop of 0.2 percent.
Excluding Wal-Mart Stores Inc
Nonetheless, retail shares fell in afternoon trading, with the Standard & Poor's Retail Index <.RLX> down almost 2 percent.
It's hard to really ... be terribly excited, said Michael Niemira, chief economist with the International Council of Shopping Centers (ICSC), since the results only demonstrate a move from extreme weakness to moderate weakness. That progress toward improvement will continue.
Niemira added the ICSC expects same-store sales to be flat to down 1 percent in May.
EASTER, WEATHER FUEL SURPRISE
Retailers did not say whether the H1N1 flu drove demand for health-related items, nor whether fear of catching the virus kept U.S. shoppers away from malls already seeing lighter traffic during the recession.
With the S&P Retail Index up 14 percent since April began, Drbul struck a cautious tone, noting comparisons would get more difficult as money from tax rebates wanes and retailers cycle the boost from 2008 economic stimulus checks.
Wal-Mart's U.S. sales at stores open at least a year rose 5 percent, compared with analysts' average estimate for a 2.9 percent increase, according to Thomson Reuters data. The world's largest retailer cited demand for Easter merchandise, as well as discretionary items such as entertainment and home goods.
Still, Target said it now expects first-quarter profit to be well above 52 cents per share, driven by better than expected results at its stores, where it has been keeping tight controls on inventory. Its shares rose about 2 percent.
Analysts, on average, were expecting Target to earn 53 cents per share, according to Reuters Estimates.
Lazard Capital Markets analyst Todd Slater noted much of Gap's strength stems from its lower-priced Old Navy chain improving its merchandise to attract cost-conscious shoppers.
While trends at Old Navy are improving, we believe business momentum at Gap stores and Banana Republic continues to deteriorate, Slater said.
J.C. Penney Co Inc
TJX Cos Inc
While we are pleased that our performance has been above our expectations, allowing us to raise our first quarter earnings estimates, the economic environment remains uncertain, said TJX CEO Carol Meyrowitz.
Despite those signs of life, there were still some notable disappointments as consumers continue to focus on value.
Costco Wholesale Corp
Hot Topic Inc
(Additional reporting by Nicole Maestri in San Francisco and Ben Klayman and Jessica Wohl in Chicago, editing by Dave Zimmerman and Andre Grenon)