Coming To A Store Near You — Growth

5/23/2011


At a glance, April retail sales may not look good, with sales excluding autos and gasoline up just 0.2% from the previous month, lagging March's 0.7% gain. However, sales have risen month-to-month for 10 straight months, and the slowdown doesn't tell the whole story:

• Total retail sales rose an impressive 7.6% year-over-year in April. Without the boost from automobiles and gasoline, growth was 4.7% — not what we've seen over the last six months but slightly ahead of the average since 1993. While the faster growth common during recoveries appears to have ebbed, April numbers suggest consumer spending continues to rise — good news for the economy in general and retail stocks in particular.

• Recent improvement in the labor market — April saw the creation of 268,000 new private-sector jobs, the strongest growth in five years — should empower more consumers to get out and spend. Private-sector payrolls have expanded for 14 consecutive months, a trend likely to continue in the near term.

• Consumer prices rose less in April than they did in February or March, helped by slower inflation in food and energy prices. The core inflation rate, which excludes food and energy, was up just 1.3% year-over-year. While the rise in gasoline prices has put pressure on consumers, other goods have not seen kind of price gains that often presage a buying slowdown — especially considering the 5.0% growth in U.S. personal income for the 12 months ended March.

Retail roundup

The Forecasts follows nine retailers on our Monitored List, including three recommended for purchase. Advance Auto Parts ($70; AAP) is a Focus List Buy and a Long-Term Buy, AutoZone ($281; AZO) is a Buy and a Long-Term Buy, and Wal-Mart Stores ($56; WMT) is a Long-Term Buy.

Wal-Mart Stores ($56; WMT) said per-share earnings rose 13% to $0.98 in the April quarter, easing past the consensus by $0.03. Sales increased 4% to $103.42 billion, driven by a 12% advance at the international unit. Excluding gasoline, U.S. same-store sales declined for the eighth straight quarter. In other news, a South African tribunal continues to review Wal-Mart's $2.4 billion bid to acquire a 51% stake in Massmart. Wal-Mart vowed to postpone laying off workers for at least two years but threatened to back out of the deal if South Africa requires Wal-Mart to use too many local suppliers. Wal-Mart is a Long-Term Buy.


In the April quarter, Advance Auto Parts ($70; AAP) earned $1.35 per share, up 13%, missing the consensus by $0.02. Revenue increased 4% to $1.90 billion, also shy of Wall Street expectations. Same-store sales climbed 1.4% on top of a 7.7% gain in the same quarter last year. Advance now projects same-store-sales growth in the low-single digits in the current fiscal year. The operating results are disappointing, though Advance reiterated earlier expectations for 16% to 22% growth in per-share profits this year. For now, Advance Auto remains a Focus List Buy and a Long-Term Buy.


Home Depot ($37; HD) and Lowe's ($25; LOW) reported uninspiring April-quarter results as they struggled to generate sales growth in what is typically a strong quarter for home renovations. Same-store sales slipped 3.3% at Lowe's and 0.6% at Home Depot. Home Depot and Lowe's are rated B (average).


TJX's ($52; TJX) April-quarter earnings per share fell 3% to $0.78, missing the consensus by $0.02. Same-store sales crawled 2% higher, as weakness in Europe offset solid growth in the U.S. Target ($51; TGT) delivered decent growth in the quarter, with per-share profits up 10% on 2% higher same-store sales. But shares dipped when the company said Wall Street's profit expectations may be too high. TJX is rated A (above average). Target is rated B (average).


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