Weakness Reported in May Retail Sales
Cold, rainy weather in May dampened U.S. retail sales, especially of summer apparel, and analysts said a cloudy economic picture will keep demand down even as temperatures rise.
“There’s no question that consumer momentum is slowing,” said retail analyst Kevin Tawes of Independence Investments, a unit of John Hancock Financial Services. “Consumers have lost the tailwind that had pushed them forward, and we can’t ask or expect more of them in the months ahead.”
Analysts had expected May sales at stores open at least a year, a key measure of retail performance, to be weak across the board, especially for apparel retailers. Department stores such as J.C. Penney Co. performed even worse than anticipated.
“Consumers just aren’t looking for summer clothes, an air conditioner or a patio set when it’s 60 degrees and raining,” Tawes said.
Once again, discounters such as Wal-Mart Stores Inc. and warehouse clubs such as Costco Wholesale Corp. fared best as consumers sought low prices on staples such as food and household cleansers.
Target Corp. posted disappointing results because it sells more apparel than other discounters and thus is more vulnerable to the weather. Its same-store sales rose 2.6%, falling short of a forecast in the mid-single digits.
On Wednesday, Wal-Mart, the world’s largest retailer, posted a 6.2% increase as strong sales of groceries and household products offset sluggish demand for seasonal merchandise. Some analysts had expected only a 4% rise.
Bank of Tokyo Mitsubishi said its index of 72 retailers showed a 3.5% rise in same-store sales in May, in line with its expectations at the beginning of the month.
“I think we’re still early enough in the summer season to pick up in demand” for seasonal merchandise, said Mike Niemira, an economist at the bank.
Indeed, many retailers said they were poised for pent-up demand once the weather improves. But weather is only one piece of a complicated puzzle.
Gap Inc., the apparel giant that operates the Gap, Banana Republic and Old Navy chains, marked its 26th straight month of same-store sales declines as it struggles to win back customers who were turned off by overly trendy products.
Same-store sales fell 9% companywide and 15% in the domestic Gap stores division.
Women’s apparel retailers AnnTaylor Stores Corp. and Talbots Inc. both reported sales declines, but affirmed quarterly earnings estimates as they refrained from discounting, which cuts into profits.
“The silver lining in this cloudy May is the fact that apparel retailers entered the month with very lean inventories and were able to protect margins in a weak sales environment,” said UBS Warburg analyst Richard Jaffe.
After the Sept. 11 attacks, retailers fared so poorly and faced such uncertainly that they planned conservatively for the spring.
“Retailers that planned lean and operated more defensively, minimizing downside rather than maximizing upside, did pretty well,” Jaffe said. “In the second half, I think you’ll see less defensive inventory levels.”
By keeping less merchandise on hand, retailers avoid having to cut prices in the event that it doesn’t sell. But analysts said low inventories also indicate a lack of confidence that demand will increase significantly.
Department stores were still under pressure last month as consumers shunned higher-end, full-priced merchandise.
Posting worse-than-expected declines were Federated Department Stores Inc., which runs Macy’s and Bloomingdale’s, and May Department Stores Co., as well as value-priced department chains J.C. Penney and Sears, Roebuck & Co.
