Are Retail Sales Indicators Really as Positive as They Seem?
Depending on who you ask, sales in the retail sector may be either brisk or failing to gain traction. Like most things in the stock market, when it comes to the retail sector, it’s all about perspective.
According to the U.S. Department of Commerce, December retail sector sales advanced 0.2% month-over-month, beating analyst forecasts that expected a one-percent increase. Auto sales fell 1.8%, pulling total retail sales numbers down. Not surprisingly, the weak December auto sales numbers are considered more of a reflection of the bad weather than a weak economy. (Source: “U.S. Census Bureau News: Advanced Monthly Sales for Retail and Food Services December 2013,” United States Census Bureau web site, January 14, 2014.) Excluding auto sales, December retail sector sales climbed 0.7% after a 0.2% increase in November.
Are these retail sector sales numbers the latest indication that the economy is getting stronger as we begin 2014?
Well, that depends on how you look at it. Month-over-month, the retail sector sales data looks encouraging. But if you step back a bit and look at the last few months—or even year-over-year numbers—the retail sector and, by extension, the U.S. economy don’t look so bright.
Overall sales of furniture, sporting goods, building materials, garden equipment, electronics, and appliances fell month-over-month. Electronics and appliance stores, two key gift-buying outlets during the holiday season, tripped in November and December. Year-over-year, electronics sales were up a paltry 0.7%.
Department store revenues were essentially flat in November compared to October and were down slightly in December. Overall 2013 department store sales were down 4.7% from 2012.
So now I ask you, will the good times continue to roll in 2014?
It appears the so-called economic “rebound” means that even dollar stores are getting too expensive for many Americans. While Family Dollar Stores, Inc. (NYSE/FDO) has seen its share price soar by more than 365% since the markets crashed in 2008, it’s been seeing red after reporting disappointing first-quarter earnings. (Source: “Family Dollar Reports First Quarter 2014 Financial Results,” Family Dollar Stores, Inc. web site, January 9, 2014.)
Commenting on the weak results, the company’s CEO, Howard Levin, said, “…our core lower-income customers have faced high unemployment levels, higher payroll taxes, and more recently reductions in government-assistance programs. All of these factors have resulted in incremental financial pressure and reduction in overall spending in the market.” (Source: Veloz, R., “Low end retail stores struggle,” KFOX14 web site, last accessed January 15, 2014.)
In an effort to increase sales, this retail sector stock launched more promotions than it had originally planned—but to no avail; comparable store sales fell by about three percent. The difficult operating environment means the company has had to lower its earnings expectations for the second quarter and full year of fiscal 2014. These kinds of metrics do not bode well for an economy that gets about 70% of its economic growth from consumer spending.
Family Dollar Stores isn’t the only retail sector discount variety store facing tough times. Big Lots, Inc. (NYSE/BIG), Dollar Tree, Inc. (NASDAQ/DLTR), PriceSmart, Inc. (NASDAQ/PSMT), and Tuesday Morning Corporation (NASDAQ/TUES) have all recently seen their share prices take a hit.
Going forward, stagnant wages and high unemployment could also mean that big-box retail sector stocks, including Target Corporation (NYSE/TGT), Sears Holdings Corporation (NASDAQ/SHLD), and Macy’s, Inc. (NYSE/M), could be in for a rough ride in 2014.
If retail stocks tumble, investors could consider shorting an exchange-traded fund (ETF) like SPDR S&P Retail ETF (NYSEArca/XRT) or Market Vectors Retail ETF (NYSEArca/RTH). At the other end of the spectrum, there are a number of solid luxury brand stocks that have been performing consistently, including Michael Kors Holdings Limited (NYSE/KORS) and Tiffany & Co. (NYSE/TIF), that investors may also consider.