Big US retailers are expected to show a slight improvement in April sales on Thursday from an abysmal March as warmer weather drove demand for spring merchandise. But Wall Street still expects signs of weakness at department stores.
Many retailers have been struggling in recent months as cash-strapped consumers pull back on nonessential items like furniture, clothes and jewelry due to soaring food and gasoline prices.
By contrast, analysts expect chains that sell necessities like food and milk at discount prices — Wal-Mart Stores , Costco Wholesale and Target — to be among the standouts Thursday when many companies report monthly same-store sales, a key measure of retail health.
"The consumer is focused on buying what they have to have, not what they want to have," said Howard Davidowitz, chairman of Davidowitz & Associates, a New York-based retail consulting firm. "You'll see softness in almost all the major department stores, such as J.C. Penney , Kohl's , Macy's , Sears Holdings and Dillard's ."
March was the worst month for U.S. retailers in 13 years due to the earliest Easter since 1913, and as cold weather curbed demand for spring clothing. Easter fell on March 23.
While overall Easter sales help retailers, the holiday — which usually falls in April — takes away one shopping day and reduces total sales for the month.
"Easter fell three weeks earlier this year, so that's a definite benefit" for April, said Wedbush Morgan Securities analyst Joan Storms. "The other thing is the weather finally broke. It warmed up across most of the country, so seasonal items — whether it's spring apparel or lawn (and) garden — those sales should spike."
That bodes well for teen clothing retailer Aeropostale, which sells flip-flops, vintage-style T-shirts and designer hoodies, Brean Murray Carret analyst Eric Beder said in a research note.
"Aeropostale has remained, hands down, the poster child for how to succeed in this economic environment, offering great fashions at reasonable prices," said Beder, adding he doesn't foresee any slowdown for the company in the near-term.
Pacific Sunwear of California Inc is also expected to bounce back from a dismal March, with higher temperatures boosting demand for its surfing-inspired apparel.
Warmer weather and strong demand for bargains likely boosted April sales for off-price retailer TJX , Stifel Nicolaus analyst Richard Jaffe said in a research note.
"Historically, macro-economic forces have not slowed down TJX's value-oriented customer. A slowing economy can motivate consumers to shop off-price. We expect this trend to continue in 2008."