Chain Store Sales Still Weak: Barrington Research Associates
The explanations remain the same---cool weather, high energy costs and slower additions of consumer cash flo w with the absence of tax refunds, refinancing proceeds and tax rebates. But the retail industry has not put two good sequential weeks together for several months and the current level of sales is not much different from that in February. According to the ICSC's chain store sales index, comparable sales in the latest week ended July 10 were unchanged from the previous week. Add in the fact that current week sales have increasingly difficult year-over-year comparisons, and the earnings outlook for retailers look even worse. Last week, the ICSC index showed year-over-year comparable sales growth at just 3.4%, the weakest since last August. As we've been writing for several months, sales in early 2003 were very soft during the ramp-up period leading to the Iraq war, providing very easy comparisons for 2004 results in the first quarter. After the Iraq war, however, sales steadily recovered leading up the strong surge during the summer, helped by initial stimulus of the Bush tax cut, which included the mailing of billions dollars worth of child care checks starting in July. Hence, year-over-year comparable sales comparisons are currently under their heaviest pressure, as indicated by last week's results.
The difficult year-over-year comparisons will remain so well into the summer and, consequently, second quarter earnings for retail stocks will also be severely challenged. Stock prices in June were already discounting this bad news, with the retail sector among the worst performers. However, ICSC raised its sales growth forecast for July to 3%-4% from 3%-3.5% last week, but it is still not much better than the weak 2.9% June increase. Comparisons will get be even more difficult in the weeks ahead, but will start to get easier again as we approach the fall. In the meantime, employment should continue to grow along with personal income and wage rates, providing improving spending fundamentals. A part of that, however, will be offset by at least modestly rising interest rates and retail price inflation.
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