'False hope' seen in April store sales gains

Analysts, citing numerous headwinds, aren't buying that last month's gains indicate a rebound in consumer spending.

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By Parija B. Kavilanz, CNNMoney.com senior writer

When it comes to the economy, I feel:
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Credit binge: Consumers drunk on debt

NEW YORK (CNNMoney.com) -- Although many retailers reported improved April sales, following a disastrous March, analysts cautioned Thursday that it's premature to declare a resurgence in consumer spending.

"It's false hope to think that these numbers show that a rebound is about to take place in consumer spending," said Ken Perkins, president of sales tracking firm Retail Metrics, adding that there are still too many "headwinds" constraining consumers' discretionary budgets.

Specifically, Perkins pointed to four months of job losses, record-high gas prices, higher food prices, tighter credit availability and declining home values as the primary culprits.

Perkins estimates that sales at stores open at least a year, which is a key measure of retail performance, have averaged about 1% monthly growth so far this year.

"That compares with a monthly average increase of 2.6% last year and 3.7% monthly same-store sales increase in 2006," he said. "Monthly sales growth has tailed off significantly."

"I'm not expecting monthly sales to get anywhere near 2% or over this year," he added.

What's more, retailers benefited last month from much easier year-over-year sales comparisons. So even though sales tracker Thomson Reuters expects total April sales for 36 of the nation's largest chains it tracks to have increased 2.5%, that compares with a 1.8% drop in total sales for the same month a year ago.

Thomson Reuters senior research analyst Jharonne Martis said most analysts typically look at March-April sales together because of the impact of the Easter holiday weekend. This year, sales for the two months combined are forecast to rise 0.9%. That still would trail last year's 2.1% increase for the two months, she said.

At the same time, Perkins said the federal stimulus money that has been going out to Americans becomes the "wild card" - helping to somewhat boost discretionary spending, but maybe not enough to affect a rebound.

"Discretionary items aren't selling well," Perkins said. "Even Wal-Mart warned that its shoppers are struggling more paycheck to paycheck."

Wal-Mart: Good news, bad news

Wal-Mart Stores reported April same-store sales that topped its own forecast. However, the retailer also tempered its forecast for May, citing a tough economy and its impact on its mostly paycheck-to-paycheck customer base.

The No. 1 retailer said sales at its stores open at least a year, a key measure of retail performance known as same-store sales, rose 3.2% in April. Wal-Mart has forecast sales to increase between 1% to 3% for the month.

The company said strong sales in its grocery, health and wellness, and entertainment segments, driven by purchases of flat-panel TVs video games and gaming systems, boosted its monthly performance.

Additionally, it said sales were also higher for over-the-counter medications. But sales of home-related merchandise continued to be weak.

Analysts point out that another factor working in Wal-Mart's favor is the "trading down" trend as more budget-conscious households switch to discount chains for their shopping needs.

This trend has also benefited wholesale club operators such as Costco (COST, Fortune 500), BJ's (BJ, Fortune 500) and Wal-Mart unit Sam's Club.

April same-store sales at Sam's Club jumped 6.6% for retail-related purchases, excluding fuel purchases.

Last week, Wal-Mart announced it would let shoppers cash their federal stimulus checks for free at its stores and offer additional discounts on groceries, as a way to pull in more consumers into its stores.

Despite these incentives, Wal-Mart executives were still cautious about the overall spending environment.

"The economy continues to get tougher and the 'paycheck cycle' is more pronounced for customers than in past months," said Eduardo Castro-Wright, CEO of Wal-Mart U.S.A.

"As money gets tighter for them toward the end of the month, sales drop more than we have seen in the past," he said. To that end, Wal-Mart (WMT, Fortune 500) said it expects May sales to be between flat to up 2%.

"The tone of the April numbers is a little bit better," said Michael Niemira, chief retail analyst with the International Council of Shopping Centers (ICSC). "That aside, what we saw in the month was a confluence of factors that included easier comparisons from last year and a calendar shift with Easter coming much earlier."

"I do agree that the best gauge would be to take March and April sales together," he said. "Our average for the two months would be an increase of 1.5%, which is still pretty sluggish."

Wal-Mart's rival Target (TGT, Fortune 500) logged a 3.1% same-store sales gain in April that fell well short of analysts' forecast for a 4.5% increase, according to Thomson Reuters.

Some teen clothiers had a good month. Aeropostale (ARO) posted a 25% sales surge, but that compared to a 14% drop in sales for the same period a year ago. Gap Inc., (GPS, Fortune 500) the No. 1 apparel seller, posted a disappointing 6% drop in April same-store sales, although that decrease was much less pronounced than last year's 16% decline.

Sales at Limited Brands (LTD, Fortune 500), which operates Victoria's Secret and Bath & Body Works chains, fell 5%, much worse than analysts' forecasts for a 2.3% fall. To top of page

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