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Does April Look Promising for Retailers?

Zacks Equity Research

After a disappointing sales performance in March, it remains to be seen how things are shaping up for retailers in April. Higher Social Security Payroll taxes, unexpected cold weather and political gridlock and brinkmanship dampened the mood of shoppers in March. Retail sales fell 0.4% last month, the biggest drop since June last year, according to the U.S. Department of Commerce.

This is the second time in three months that retail sales have tumbled. The figure had fallen 0.1% in Jan 2013 but improved 1% in February. A sluggish recovery in the labor market is also cited as one of the factors hurting consumers’ enthusiasm. The data from Labor Department suggested that the economy infused 88,000 jobs in March, far less than the average 220,000 jobs added in the prior four months.

As a whole, Mar 2013 was tough for most retailers, who witnessed sluggish comparable-store sales. The retail chains like The Cato Corporation (CATO), Gap Inc. (GPS) and The TJX Companies, Inc. (TJX) witnessed comps decline of 11%, 1% and 2%, respectively. Buckle Inc. (BKE) posted flat comps, while Fred’s, Inc.’s (FRED) comps fell 3%.

However, a few retail chains were able to navigate through this challenging economy. Among these, Costco Wholesale Corp (COST), Limited Brands Inc. (LTD) and Ross Stores Inc. (ROST) reported comparable-store sales growth of 4%, 3% and 2%, respectively.

But now, the biggest question is whether April holds promises for retailers, after the March debacle. We will try to analyze this from an overall economic perspective.

Higher taxes, weak job prospects and lower discretionary spending could mark soft sales for April. Moreover, a tightening fiscal policy is hampering consumer confidence. A preliminary reading by Thompson Reuters and the University of Michigan revealed that consumer sentiment fell sharply to 72.3 in April from 78.6 in March, and reached the lowest level since Jul 2012.

To insulate themselves from these hurdles, retailers might go for heavy discounting to attract consumers and clear their inventories but this could dent their margins.

On the other hand, some believe that improvement in weather conditions, the calendar shift in Easter to March this year from April last year, and the expected fall in gasoline prices along with tax refunds that are gradually making their way in, could lead to a rise in discretionary spending and in turn better sales in April.

But with economy yet to show full recovery and the unemployment rate hovering around 7.6%, April might see cautious consumer spending.

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