Top-line retail sales results in June gave executives some reason for cautious optimism, as lower gas prices eased pressure on consumers. Moreover, there are signs that consumer confidence may be stabilizing after months of deterioration.


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Retail News Breaks Archives

Retail sales experience a surge in June

July 7th, 2011

NEW YORK – Top-line retail sales results in June gave executives some reason for cautious optimism, as lower gas prices eased pressure on consumers. Moreover, there are signs that consumer confidence may be stabilizing after months of deterioration.

According to Kantar Retail, comparable-store sales among a select group of 28 retailers (skewed toward apparel) rose 7.1%, more than doubling the anemic 3.2% increase of a year ago but also well ahead of the 5.7% improvement shown in May. The group does not include Walmart, which stopped reporting monthly sales in April 2009.

“High fuel and food prices will still take a toll, but a sustained letup in gasoline prices will help ensure that the toll means slower growth instead of outright declines in discretionary spending in the months ahead,” said Frank Badillo, senior economist for Kantar Retail.

Food, drug and discount retailers generally showed better-than-average gains (some of which were helped by fuel sales) but department stores and apparel outlets also did well. Upscale retailers catering to the affluent, such as Neiman Marcus Inc. and Nordstrom Inc., continued to do well, while results were somewhat mixed among mass market retailers.

For example, Target Corp. rebounded from a disappointing May with a 4.5% surge in same-store sales that far exceeded analysts’ consensus forecast of a 3.2% rise. Grocery led the way with an increase in the mid-teens, while health care, beauty and household essentials rose in the mid-to-high single digits and apparel tracked the overall increase. According to management, comparable-store results were highly consistent across regions.

Costco Wholesale Corp., meanwhile, turned in the best performance, with a 14% jump in company-wide comparable-store sales that included a 12% increase at domestic clubs. Excluding gasoline sales and the favorable impact of foreign currency exchange, comp-store results rose 8% overall and at U.S. clubs as well. The impressive numbers were driven by a 6.3% rise in customer traffic and a 7.3% jump in the average transaction, including the benefit from gasoline and foreign exchange.

“Costco remains one of our top stock recommendations, as we believe the company is well positioned to benefit from stronger small-business spending, firm demand among its middle-to-upper-income member base and continued improvement in average ticket,” wrote William Blair analyst Mark Miller in a research note.

BJ’s Wholesale Club Inc. reported more modest improvement, with overall comparable-store sales up 7.3% and merchandise comps (excluding gasoline) growing 3.5%. According to the company, growth was driven by a 4% lift in the average transaction while customer traffic was flat. Comp-store sales rose in all major regions.

The month was disappointing, however, at regional discounter Fred’s Inc., which recorded a 0.7% decrease in comparable-store results. “After a solid start in the first half of June, we saw a significant downward adjustment in the last half of the month as customer traffic remained positive, but our average customer ticket declined,” said Bruce Efird, chief executive officer. “Another example of the challenging economy was seen in the paycheck cycle, which was very pronounced in the final weeks of the month.”

As a result, Fred’s management reduced its second-quarter earnings forecast to the low end of its previously predicted range of 14 cents to 16 cents per diluted share.

Among major drug chains, Walgreen Co. reported a same-store sales increase of 4.8% that was driven by a 4.9% gain at the pharmacy and a solid 4.7% rise at the front end.

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