During the first quarter of the year, retail companies were pointing fingers at the Polar Vortex, saying unusually cold weather was keeping shoppers home. But, though temperatures got warmer, retailers were still having trouble getting customers to walk through their doors.
Bill Simon, CEO of Wal-Mart U.S., said despite improving employment data, it hasn't translated to more sales at Walmart stores, America's largest retail chain. Rent-A-Center says its consumers are financially constrained because of macroeconomic pressures.
"We thought our sluggish sales were all because of weather and calendar shifts that began last November and continued into the spring, but now we've come to realize it's more than weather and calendar," said Kip Tindell, CEO of The Container Store, in a press release. "Consistent with so many of our fellow retailers, we are experiencing a retail 'funk.'"
According to Gina Sanchez, founder of Chantico Global, it's the lower-end shopper who is experiencing the most difficulty, while those in the upper end aren't feeling the same pinch.
"Low-end consumers have continued to remain cautious," said Sanchez, a CNBC contributor. "Wages aren't rising fast enough to make the lowest-end consumer feel comfortable spending like crazy. However, you are hearing stories that the higher-end consumer is picking up and is starting to spend. You even heard from the CEO of Kroger's at the end of June [say] that Kroger's shoppers were demonstrating less cautiousness buying upscale pet food and more expensive products."
While MasterCard's data show aggregate consumption as being healthy, bargain stores like T.J. Maxx are among those missing their earnings estimates, Sanchez said. "Sixty one of the retail companies that have announced [earnings] so far have missed [estimates] by an average of 2.6 percent," she said. "Usually, the retail industry would be beating by 3 percent in this time period. So, that really tells that something is going on but I think it's happening at the lower end. "
However, retail stocks may have potential upside, according to Katie Stockton, chief technical strategist at BTIG. "I like countertrend opportunities and we've obviously seen the retail sector as a whole underperform significantly year to date," she said. "It's given back almost the entire 2013 phase of outperformance. And, that to me suggests we may have a countertrend opportunity to add more exposure in the more oversold names within the retail sector."
Stockton suggests investors may want to focus on high-end retailers, though she sees the ETF tracking the retail sector, the XRT, as a possible investment.
"On a broad basis, the XRT is within pennies of their all-time highs," Stockton said. "So, the momentum is still there, very much from a longer-term perspective."
She also sees intermediate momentum in XRT as having turned positive for the first time this year. And, she thinks stocks that get hit after reporting earnings deserve a look.
"Maybe a little earnings-driven volatility to the downside is a good thing," said Stockton. "It will present some buying opportunities in the names that have actually exhibited positive momentum like the XRT."
To see the full discussion on the retail sector and the XRT, with Sanchez on the fundamentals and Stockton on the technicals, watch the above video.