Misleading April Retail Numbers: Invest In Discounters

There has been much circulation around the press that the recent retail sales by the Commerce Department, which showed a 0.5% increase (excluding auto) is indicative that the US is not in a recession. To these writers, I say you need to get out more and see the reality of what’s happening in stores! The fact is that a majority of this increase is driven by discounters and wholesale club retailers; indeed Wal-Mart (WMT) and Costco (COST) were among the top performers in April. In addition, April numbers are ‘inflated’ because there was an extra shopping day last month compared to a year ago, depressing March sales and inflating April figures.

We need to be cautious because most Americans right now is contending with rising gas prices, sagging homes and worried about their jobs. Consumers are not spending the way they used to; they’re stretching their dollars – i.e. they want more value for the same dollar they spent a year ago.

The following is a look at a select sample of apparel, discount and department stores ranked by their average 2008 monthly same store sales growth. As we can see, discount retailers tend to be ranked higher than department stores and apparel retailers. In addition, retailers showing the most consistent growth are the wholesale clubs, BJ’s (BJ) and Costco.

From the above dataset, we can extract a comparison of the average monthly same store retail sales growth, weighted by each retailer’s 2007 revenue. As we can clearly see, the past 4 months have been dominated by discount chains, while apparel and department stores are lagging significantly behind. April was particularly good for discount stores while the other two categories saw modest change in growth.

For investors, what all of this means is that the recession is not at all undermined by the 0.5% growth in retail numbers as reported by the Dept of Commerce; if anything, the growth which is primarily driven by discounters is a sign that the recession is still looming at large. Although I do hope that the recession will come to an end, I am skeptical that it will happen any time soon, even with the IRS tax stimulus. I believe investments in retailers like BJ’s, Wal-Mart and Costco as consumers continue to be become pressed.

Disclosure: The author has a long position in WMT.

Comments

[michaelservet]

I believe your data selection may be somewhat skewed (probably upward), because the population you are drawing from excludes companies that have discontinued same-store-sales reporting (Macy's, Sears, etc).

As quarterly data becomes available, it would be interesting to update the chart with some of those that have discontinued monthly reporting. The picture may be even worse than the monthly data suggest.

[tedstr]

Your argument only supports the fact that more people are shoppping at discounters...a long term trend that has been in place for many years, recession or not.

The additional day in April does indicate that sales may have been down YTY but it seems to be balancing out month to month at a slow but not recessionary pace.

[adan]

michaelservet above had some good info i hadn't heard about (or i'd read and forgotten about) re companies that've discontinued same-store-sales

it'd be so very good if the financial reporters on tv etc would mention this and give us a balanced picture

it's time to let america grow up and know the facts

continued omissions just erodes what trust there is still in the system, which is terribly counter-productive for continuing a thriving capitalist society (read: belief that one can still make more $, specifically enough to set oneself free financially)

[madmilker]

Howard....with what you write....please get out of the Sun...the heat is getting to you. Cheap crap is what got America into this mess and until the American consumer starts thinking made in America...it's only gonna get worse.