Retail Sales Recovery Isn't So Clear

The International Council of Shopping Centers (ICSC) - Goldman Sachs (GS) produced its preliminary report for September's Chain Store Sales on Thursday. According to the ICSC, those sales inched higher by 0.1% in September, offering what its Chief Economist Michael P. Niemera called, "the beginning of recovery."

Retail Chain Store Sales Recovery in Question

Most would use caution in predicting recovery based on such a small increase, and on preliminary data nonetheless! Yet popular media sounded the same song on Thursday, while also inspired by lower than expected weekly jobless claims. Thus, a market that was hungry for a reason to recover, gained ground on the day. The S&P 500 Index rose 0.75% Wednesday, and the Dow Jones Industrials moved 0.63% higher.

However, your favorite truth-teller, Wall Street Greek, feels compelled to warn you of the shenanigans run amok. The first sales gain since July 2008 got a special boost you see. Labor Day arrived especially late this year, in fact, as late as it could possibly be. School does not start until summer officially finishes though. Thus, "back to school" shopping season extended deep into this past September. We warned about this "pending" event about a month back, but you forgot about anyway didn't you? Taking the late Labor Day impact into account, a 0.1% gain does not offer an ounce of enthusiasm. So, we would expect that as the market gains better understanding of this, these resulting gains will dissipate. So now that we have stolen the ICSC's thunder, let's review the store tally.

The September Sales Tally:

Company	Ticker	September Sales
Target	NYSE: TGT	-1.7%
Macy's	NYSE: M	-2.3%
J.C. Penney	NYSE: JCP	-1.4%
Gap Inc.	NYSE: GPS	-1.0%
American Eagle	NYSE: AEO	No Change
TJX Cos.	NYSE: TJX	+7.0%
Kohl's	NYSE: KSS	+5.5%

Making a Case to the Contrary:

We owe it to ourselves and to you to consider all angles to an issue, and you are always guaranteed to get unbiased opinion from me. I have no interest here; I am not selling anything to you or the companies I'm addressing; nor am I doing any business with the government or anyone who might have an interest in how this story is reported. So here's the other side of the story.

Part of the reason the market grew enthusiastic on Thursday was because of a second report. Retail Metrics, Inc. reported that September same-store sales increased 1.1% last month, significantly more than the ICSC noted for September chain store sales. Also, many of the companies reporting their individual sales beat analysts' estimates. In fact, according to Retail Metrics, 70% of retailers reported better numbers than the average figures the statistician compiled from analysts.

Even so, Labor Day falling on September 7, versus September 1st last year, is BIG! It plays a significant role when we are speaking about "back to school" shopping season. It's also very likely that sales that may have not occurred in August, might have led panicky retailers to slash prices and promote products to lure in last minute September sales. So from my perspective, because of the special Labor Day factor, we cannot call the "beginning of recovery" in retail just yet.

Disclosure: No Positions

Comments

[notsosmart:]

many retailers will close after the holidays & the 1st quarter of '10 will be the story.i hope im wrong. the ones that survive will be in a better position due to less competition.

Oct 09 11:04 AM

[TheCaptain:]

Don't forget, too, that many retailers have easier comps in the next few months versus last year. Not necessarily a sign that shopping is up, but definitely a sign that enough people have been laid off from the retailers, cost cuts have taken place and inventories are manageable.

Oct 09 12:19 PM

[notsosmart:]

it may work in nov. & dec. will it work in the 1st quarter of '10?

Oct 09 04:55 PM

[2houndz:]

Captain - how is fewer retail employees and less inventory going to help sales comps? Agreed that it should help the bottom line look better, but we are talking here about sales. That's unless of course, in addition to a "job-less" recovery we are now talking about a "revenue-less" recovery, which really would not surprise me one bit. I have myself started expecting a "recovery-less" recovery, where nothing actually improves except government transfer payments that keep pumping up the markets.... but I digress....

Markos,
You wrote above:
"Most would use caution in predicting recovery based on such a small increase, and on preliminary data nonetheless!"

I am in agreement with you and thank you for your post, but keep in mind that most revisions downward are simply overlooked. If a data point, preliminary or otherwise is encouraging, it is a "surprise" and is leading data. If data is negative or if a prior announcement is revised down it is lagging, was expected, and is already priced into the market.

Again I appreciate your objectivity, but you cannot win at this game.

Oct 10 03:08 PM