Rob Black's Retail Market Roundup For May 4 (AMZN, ANN, ARO, BEBE, WFMI)

Includes: AMZN, ANN, ARO, BEBE
by: Rob Black

Retailers reported the biggest sales gains in more than two years last month as Easter and warmer weather spurred spending on spring clothing. Higher gasoline prices appeared to have little impact.

Stores benefited as shoppers purchased dresses, shorts and t-shirts as the weather improved from March. The April gains may help retailers post positive first-quarter profit reports later this month. Increases in gasoline prices, which rose 12 percent in April, could limit spending in May and June. Retailers that cater to teens benefited from later spring breaks, which generate demand for clothing.

Dresses and shorts were the must-have clothing items for spring and thus AnnTaylor(NYSE:ANN) and Bebe Stores Inc. (NASDAQ:BEBE) may benefit from dress sales, and Aeropostale (NYSE:ARO) may gain from sales of shorts. An improving job market may also be lifting spending as employers are adding jobs while the unemployment rate held at 4.7 percent. That is the good news and the bad news is that as the year goes on look for more gloom from analysts about gas prices and X-Mas.

Citigroup's Mark Mahaney raised his rating on Amazon (NASDAQ:AMZN) to "hold"'.

Whole Foods
(WFMI) reported 2nd quarter 2006 EPS of $0.36 above the consensus $0.35. The earnings upside stems from pre-opening expense shifting combined with greater than anticipated interest income. Direct store contribution declined 10 bps comprising 40 bps of gross margin erosion and 30 bps of unanticipated but impressive direct store expense leverage.

Analysts remain concerned gross margin pressure will persist as the company remains above its historical 34-35% range and direct store expense leverage opportunities remain limited due to the concept's high service component. WFMI posted comps of 11.9% - slightly below 12.9% expectation - representing 110 basis point deceleration (55 bps due to Easter shift). However, stores older than five years (roughly 70% of the comp base) posted high single digit comps (9.1%-9.8%) with sequential softening in stores five to eight years old. Sustaining the performance exhibited in 2nd quarter 2006 would likely result in a comp deceleration over the 2nd half 2006.