Retail: Sustained Upswing May Be Far Off - Desjardins

by: FP Trading Desk

It's been a shaky first-quarter reporting season for retailers, for the most part, countering the modest market momentum by investors who foresee a near-term recovery in the sector.

There may be room for optimism. But then again, sentiment among actual retail executives is dour at best, if comments made in conference calls are any indication. The mood is shared by Desjardins Securities analysts, who say a sustained upswing could be well off. Merely maintaining same-store sales levels year-over-year will be an epic success now as trends at Canadian shopping centres are showing worse results than in the U.S. as consumers catch up to recession-battered shoppers south of the border.

The current quarter could be ugly. “Canadian divisions of U.S. retailers are now posting generally weaker sales results than their U.S. parents. This was the case in April at Wal-Mart Canada (NYSE:WMT),” wrote analyst Keith Howlett in a note to clients on Friday.

He cautions that the rebound in several discretionary retail stocks since early March is "premature," drawing a comparison between the current rise in some shares to those during the recession of the early 1990s, when companies like Canadian Tire (OTC:CDNTF) and Sears Canada (NASDAQ:SHLD) rose steadily before declining once again through the last leg of the downturn.

"If the last recession is any guide, one does not want to be too early," Mr. Howlett wrote. Still, the analyst says investors who believe a near-term recovery lies on the horizon and are looking for exposure should consider Metro (OTCPK:MTRAF), Shoppers (OTCPK:SHDMF), Jean Coutu (OTCPK:JCOUF) and Forzani Group (OTC:FRZNF).