June Retail Sales Surge

By Greg Sushinsky | July 08, 2011 AAA

Sales for major retailers rose substantially in June, led by discounts and the return of eager consumers to stores. The increases were the largest since June, 1999, in what is usually the second best shopping month of the year. The prelude to the important back-to-school season brings the question of whether the trend will continue.

TUTORIAL: The Industry Handbook: The Retailing Industry

June Surge
The average rise for major retailers was 6.9% in June sales, based on a compilation of 28 retailers' results. Of a similar group of 25 major retailers, 22 reported sales which topped expectations. This survey showed the overall gain was 6.5%, which topped the estimate of 4.9%. Leaders were a diverse group, as the results tended to be better on the high and low ends with the middle lagging. Costco Wholesale (Nasdaq:COST), for example, on the discount end beat Wall Street estimates, with a 14% increase, beating the 12.7% estimate. Excluding gasoline sales and foreign currency translations, Costco's sales increase was 8%. (For related reading, see The 4 R's Of Investing In Retail.)

High End Shines
Luxury retailers Saks (NYSE:SKS) and Nordstrom (NYSE:JWN) posted strong months. Saks' sales rose 11.9%, which easily eclipsed the 7% estimate. Department store Macy's (NYSE:M) did well, with a 6.7 increase in same store sales. Macy's sales from June 1 through July 2 totaled nearly $2.4 billion, up from $2.23 billion in the same period last year, a 7.5% gain. Macy's was helped by its continuing strong online sales, which were up 45% for both macys.com and bloomingdales.com in June. Macy's raised its guidance.

Middle Mediocre
Some retailers in the middle lagged, as shown by mid-level department store JC Penney (NYSE:JCP) , which reported a 2% increase in comparable store sales, but a 0.3 decrease in overall sales. Penney failed to beat estimates for comps which were 2.3%. Penney also forecast profit for its second quarter of 6 cents, well short of the 22 cent estimate. Still, on a sequential basis, the sales figures for June are an improvement over Penney's May sales which saw comps fall by 1% and total sales fall by 3.3% year over year. (For related reading, see Analyzing Retail Stocks.)

Discounters Do Well
Discounters TJX (NYSE:TJX) and Ross Stores (Nasdaq:ROST) both performed well, as Ross Stores raised its projections while TJX predicted its second quarter profit will be at the high end of projections. Meanwhile, youth-oriented retailers with mall locations, such as Buckle (NYSE:BKE), reported a 10.8% sales increase.

Trend or Trouble?
Observers are divided on whether the overall buoyant June sales performance bodes well for retailers or not. Higher input commodity costs for goods will likely be passed on to the consumer going forward. Some suggest that the June numbers merely don't reflect that inevitability yet. With heavy promotion, along with a reliance on clearance merchandise and massive discounting - up to 80% discounts in some cases in the June retailing- it's hard to gauge how the consumer will behave in a fuller-priced back to school season.

While average gasoline prices have retreated from the daunting $4 a gallon figure so common in April and May, to an average of $3.67 a gallon in June, this too could be a factor in the ongoing volatility of retail sales, should gas prices increase again. The low-to-middle income consumer, usually bound tightly to the paycheck cycle, will continue to be extremely sensitive to these forces, potential unemployment being the overriding force.

The Bottom Line
Still, the consumer did spend, and despite all the cautions for the upcoming back-to-school season in place, shoppers went to stores and bought goods, something that hasn't been a sure thing at all in this weak economy. Retailers are cautious but now hopeful for more. (For related reading, see Using Consumer Spending As A Market Indicator.)

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