March retail sales increase comes with many investor caveats
Retail sales increased in March, defying the expectations of a consensus of analysts. Harsh winter weather, rising gas prices and a late Easter holiday were expected to produce the first monthly retail sales decline since 2009. But factors including a declining unemployment rate and higher prices resulted in a modest monthly gain.
Measuring monthly retail sales
U.S. retailers reported a 1.7 percent year-over-year increase in retail sales last month, according to a Thomson Reuters survey of 25 national retail chains. The numbers are based on retail sales reported at stores open at least since last March. The metric, known as “same-store sales,” is considered a reliable measure of retail performance because sales anomalies due to store openings and closings aren’t a factor. But analysts doubt whether the March increase is a solid trend in consumer demand. Later this year, rising prices for groceries and gas are expected to impact consumer spending. Plus, only 10 percent of retailers report monthly sales figures. A better picture of the consumer economy will come into focus when companies such as Wal-Mart, Best Buy and Home Depot report quarterly sales figures.
The importance of Easter shopping
Analysts expected March retail sales to be lackluster in large part because of the Easter holiday. This year Easter falls on April 24, three weeks later than last year and the latest Easter in decades. The calendar moves Easter shopping to April from March a year ago. The fluctuating nature of the Easter holiday has led retail analysts to create a calendar period called “Mapril” in order to get a more accurate reading on year-over-year retail sales. Some in the industry expect this year’s later Easter date would give retailers an extra boost in April sales. The International Council of Shopping Centers forecasts a robust 5 percent to 6 percent April increase. But a fragile economic recovery hit by rising food, gas and commodity prices, plus a depressed housing market and tenuous employment picture could mean that Mapril retail sails will surprise analysts in the opposite direction they did in March.
Don’t get too excited about retail stock
Many other factors suggest the March retail sales increase should be taken with a grain of salt. According to Jeff Macke at Yahoo! Finance, investors should still be wary of retail stock. He cites the fact that retailers are raising prices to offset rising prices in the supply chain, which inflates sales figures but doesn’t increase profit margins. Plus, the release of winter’s grip also released pent-up consumer demand, which resulted in bigger than normal clearance sales — great for the consumer, not so great for the retailer. Finally, retail sales beating extremely low expectations doesn’t mean much. After the Easter bump, malls could empty and margins could shrink as consumers feel the pinch of food and gas inflation.