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Must-know: The primary movers and shakers in this quarter’s retail releases

Phalguni Soni

Overview: The hits and misses in recent retail sales and earnings releases (Part 1 of 9)

Retail sales performance in Q1: February–April 2014

During the last few days, there have been a number of economic indicators and earnings releases for the retail sector. While overall U.S. retail sales in April were bland, certain companies in the retail sector outperformed in the first quarter. These companies appear to be better positioned to leverage improvements in the labor market and in the overall economy—to their advantage.

Monthly retail sales for April

The U.S. Census Bureau released advance April sales estimates on May 13, following which a number of retailers, including Walmart (WMT), Nordstrom (JWN), and Macy’s (M), reported earnings for the first quarter. Retail sales in April increase just 0.1% month-on-month, which missed consensus estimates of 0.4%. However, year-over-year (or YoY) growth came in at a more respectable 4%.

Mall traffic signals

The unusually cold winter weather has negatively impacted most economic reports this year. It was also a key factor keeping shoppers indoors in the first quarter. Mall traffic, measured by the total U.S. ShopperTrak retail traffic index, was down YoY in the first three months of 2014.

However, mall traffic increased in April. It was boosted by a spring thaw which came later than expected. Apparel and seasonal goods sales benefited at companies like Nordstrom (JWM), which came ahead of sales and earnings expectations in the first quarter. The shift in Easter dates from March last year to April this year, was also a factor that increased traffic during April.

Financial markets impact

Markets aren’t giving too much weight to the weather excuse. They are questioning the strength of the economic recovery. Due to the overall lackluster performance, Treasury yields declined with the 30-year Treasury yields falling by 11 basis points over the period from May 12–20. Bond yields usually decrease when economic growth is slowing, which increases bond prices and vice-versa. The price of the Vanguard Total Bond Market ETF (BND) increased by 0.6% over the period, while the S&P 500 Index (SPY) fell by ~1.3% over the same period.

In this series, we will discuss:

  • Retail sector performance based on the U.S. Census Bureau’s advance retail sales estimate for April
  • Revenue performance in 1Q14 for selected companies in the retail sector—including Walmart (WMT)
  • Quarterly e-commerce sales and the growth of omni-channel retail
  • Weekly ICSC-Goldman Sachs store sales and Johnson Redbook retail sales indices
  • Major macro-economic variables that are likely to impact retail sector performance going forward

A word on the retail calendar

Most retailers use a 4-5-4 accounting calendar (which doesn’t correspond to the typical quarterly dates used by most companies) to declare earnings. The retail calendar divides the year into quarters based on selling seasons, which typically end in July and January. Therefore, the financial year for most retailers starts in February (start of the spring selling season) and ends in January.

In the next part of this series, we will discuss first quarter revenues and sales strategies for Walmart (WMT), the world’s largest retailer. To learn more, continue reading the next part of this series.

Continue to Part 2

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