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Tickers in this Article: XRT, FDO, NDN, DLTR, FRED
The old battle between retail sales and gasoline prices appears to be restarting as investors and analysts blame the recent surge in gas prices for weak retail sales in the first part of June. A sales index maintained by the International Council of Shopping Centers and Goldman Sachs reported that U.S. chain-store sales fell by 1.5% in the week ending June 13, 2009, compared to the same week last year. The first week of June was also disappointing; with the same index down by 0.8%. The index measures sales at 75 chain stores, and excludes restaurants and automobile sales. The report noted that gasoline prices rose by 57 cents over the past six weeks, and is at the highest level since fall 2008. When consumers have to spend more for transportation, some analysts believe that the extra funds that are needed reduce consumer spending on discretionary purchases.
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Slowing Retail Sales
The S&P Retail SPDR (NYSE:XRT) appears to be hitting a double top from a technical perspective. The SPDR doubled off its bottom of $14.79 reached late in 2008, and peaked close to $30 in early June. The index now stands at $26.50 as of June 16, 2009. Another surprise was that traffic even slowed at discounters, who have benefited greatly from consumers trading down by substituting low-priced goods for normal purchases. Despite the slowdown in traffic, the discounters are still putting out fairly good sales numbers. Family Dollar Stores (NYSE:FDO) reported that comparable store sales for the third quarter (ended May 30) increased 6.2%.

Discounters in the Lead
Fred's Inc.
(Nasdaq:FRED) also reported positive same-store sales growth, with May up by 2.1%. The company also increased its dividend from two cents to three cents. Dollar Tree (Nasdaq:DLTR) went so far as raising its guidance for the full fiscal year, from the previous range of $2.55-2.75 to $2.75-2.95 when it reported at the end of May. The stock hit a new 52-week high before selling up with the general market correction the last week.

The Top Performer
The best performer of all, however, was 99 Cents Only Stores (NYSE:NDN), which reported 10 cent EPS last week, beating its guidance of four cents per share. The stock now trades at a two-year high.

The Bottom Line
Rising gasoline prices, the old nemesis of retail and discretionary spending appears to be rearing its ugly head once again, as oil prices start to move higher on strong momentum. This is probably the worst time for this as investors are desperately looking and need confirming evidence of a strengthening economy. (For more, read Getting A Grip On The Cost Of Gas.)

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