As the retail sector kicks off its earnings season, hedge fund manager David Berman is warning that investors do not understand just how bad results might be.
"The consumer, as I see it, is actually not weak. I think the retailer is weak," Durban Capital's Berman told "Squawk on the Street" Monday.
For retailers as a whole, Berman's analysis showed that total sales in the first quarter grew by 2 percent. That is a deceleration from the previous quarter, which saw 4 percent growth. While many blamed the weather for lower traffic, Berman's analysis suggests that a rebound hasn't happened.
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"In a few weeks, we're going to have a lot of retailers reporting. We actually think it's going to be a lot worse than people think," he said. "We thought things would bounce back, but they don't seem to have."
The health of the consumer is OK, he said, because they are spending on things such as cars, travel and technology—items generally not offered by traditional retailers.
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Another metric to focus on is the retail inventory growth rate relative to the sales growth rate, he said, which has shown a declining trend over the past four quarters.
In addition, discounting "is much heavier than it should be" and several key companies have reported largely disappointing earnings, he said. "It kind of gave you a sense that the second-quarter profits wouldn't be that good."
When asked what he thought about the earnings season for retailers, Berman said, "I just think it's going to be horrible. I think people just do not understand right now just how choppy it is."
—By CNBC's Paul Toscano. Follow him on Twitter and get the latest stories from "Squawk on the Street" @ToscanoPaul
