Breakout

Retail spotlight: Gap, Ralph Lauren say the economy is just fine

Jeff Macke
Breakout

GDP is all but impossible to calculate, unemployment is subject to economist whims, and inflation measures are so hopelessly out of touch with American consumption that they barely deserve mention. If you want to know what’s really happening in the economy you need to listen to the retailers.

That being the case I already have reason to believe that the economy is fine. According to retail metrics same-store sales for April came in at 6.2% for April, beating estimates of 3.9%. For March and April combined same store sales rose 4.7%. That’s a solid gain. Not great but too good to be smoke and mirrors. It’s a small sample size but based on what we’ve heard so far it looks like the economy is fine. Not great but not horrible either. Precisely “fine.”

If that weren’t proof enough it was confirmed last night when Gap (GPS) pre-released better than expected earnings for the first quarter and again this morning when Ralph Lauren (RL) topped estimates. Ralph Lauren guided lower for the full year and some of the sales growth overall was driven by a massive inventory dump of left-over winter clothing.

The Week Ahead

70% of GDP comes from consumer spending. If we were in a recession the retailers would be blowing up all over the place. Instead they are reporting margin pressure. That’s good. When retailers aren’t feeling a pinch it means the economy is overheating. Retail is supposed to be hard. That’s what makes it fun.

In the attached clip Scott Nations of NationsShares says he’s skeptical about the group based on the price action in Amazon (AMZN) shares and the unmitigated wreck that was Whole Foods (WFM).

Related: Whole Foods problems run deep

Whichever side you’re taking on the retail debate it’s time to place your bets because the companies start reporting next week. It kicks off with Macys (M) on Wednesday morning with analysts looking for EPS of 60-cents on $6.74 billion in revenue. On Thursday the floodgates open with Walmart (WMT) (EPS $1.15 on revenue of $116.25 biliion) and Kohl’s (KSS) (EPS 63-cents on revenue of $4.23 billion) in the morning followed by Nordstrom (JWN) (EPS 68-cents on revenue of $2.86 billion) and the always-interesting J.C. Penney (JCP) (EPS -$1.25 on revenue of $2.71 billion) in the afternoon.

That’s $132 billion worth of sales.

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