May Gains and Pains: Same Store Sales

If retailers were expecting the brisk sales gains of April 2011 to accelerate in May, they were disappointed. A handful of retailers' comparable store sales beat analyst expectations in May, attracting shoppers with a strong mix of discounts and merchandise during a month that saw gas prices around $4 per gallon, a persistant high unemployment rate of 9%, and a generally sluggish economy tinged with foreclosure woes and tumbling house prices. Most of the rest did well compared to a moribund 2010, but in general, apparel retailers stumbled.

Analysts forecasted a 5.3% gain in same store sales for May 2011, according to Thomson Reuters, a decline from the Easter-fueled 8.9% rise in April 2011, but double the 2.6% gain of May 2010. As usual, dismal weather played a part in dampening sales, more or less depending on what part of the country stores were located.

Saks, Inc. was the big leader of the retail pack, reporting a 20.2% increase in same store sales for May -- far beyond the 6.5% increase forecasted by analysts. The strongest categories at Saks Fifth Avenue stores included women’s designer apparel, shoes, handbags, and accessories; men’s clothing, shoes, and accessories; jewelry; cosmetics; and fragrances. Saks Direct performed well during the month. The company revised its same store sales guidance for the second quarter upwards from high single digit increase to low double digit increase.

Macy's reported a 7.4% increase in same-store sales, better than the 5.6% expected from analysts, primarily due to a led by a 37.7% gain in May online sales. The company also raised its same-store sales guidance for the second quarter from 4% to 5%, and increased its full-year guidance from 4.3% to 4.5%.

Zumiez beat expectations with a 7.8% increase versus a forecasted 7.5% increase. Costco was another big winner, with a 13% gain, better than the 11.2% forecast, in this case aided by higher gas prices. Costco's gas stations proved a draw, allowing shoppers to combine trips for gas and general shopping.

High gas prices remain a drag on the economy, with consumers paying more at the pump and also in the form of higher prices for goods as suppliers raise prices to cover their raw material and transportation costs. Although prices at the pump dropped about 5%, persistant high prices for months on end are taking a toll on shopping habits and spending. Consumer cash going into basics tends to dampen demand for summer clothing and other discretionary items.

Apparel retailers suffered the worst from tepid May 2011 sales. Limited Brands suffered a rare miss, posting a 6% increase, below the analysts' average forecast of 7%. Hot Topic rose 0.4% instead of the 1.4% forecasted. Wet Seal, Inc. posted a 2.9% increase, below the 4% predicted by analysts. Gap, Inc. was down 4%, worse than the 1.1% decline expected.

With apologies to Mom, May is not a big shopping month, and with apologies to Dads and Grads, June is not looking to be much better. The economic recovery continues to bump along, favoring retailers offering high-end goods to those with recovering stock portfolios. Retailers that cater to lower-income consumers are expected to struggle throughout the year, since their customers are affected by unemployment and higher food and fuel prices.

Those latter two -- food and fuel -- make up the biggest increases in inflation, a threat that lurks behind every product. Retailers have been reluctant to pass along all their increases from suppliers for fear of driving away shoppers, but there is a limit. From raising prices to shrinking the size of packages for the same price, higher prices will get passed along. But consumers can revolt in their discretionary spending, and that's likely to affect retailer results through the summer before the next big sales event: back to school.