By and  on June 14, 2011

Retail stocks had their best outing since November on Tuesday, shooting up 2.3 percent as May sales declined less than expected and investors applauded J.C. Penney Co. Inc.’s choice of Ron Johnson as its next chief executive officer.

The S&P Retail Index rose 11.33 points to 507.73 with a big push from Penney’s, which rose 17.5 percent to $35.37. And the Dow Jones Industrial Average retook the 12,000 mark, gaining 1 percent, or 123.14 points, to 12,076.11.

Retail sales posted their first decline in 11 months in May, falling a seasonally adjusted 0.2 percent from a month earlier, according to the Commerce Department. Polls of economists predicted a decline of 0.3 percent to as much as 0.7 percent.

The better-than-expected result was a shot in the arm for investors who are still trying to get a read on the economy, which saw job growth slow dramatically last month just as high gasoline prices sapped spending power from consumers.

May apparel and accessories specialty store sales increased 0.2 percent to $18.7 billion, while sales at department stores fell 0.7 percent to $15.4 billion. Sales at general merchandise stores, which include discounters and department stores, dipped 0.1 percent to $52.4 billion.

Compared with a year earlier, apparel and accessories stores gained 6 percent in May, as department stores fell 0.5 percent and general merchandise stores rose 4.1 percent.

“After a string of disappointing government reports relating to economic activity and employment, May’s retail report supports the idea of the economy hitting a soft patch,” said Jack Kleinhenz, chief economist at the National Retail Federation. “Though consumers are spending cautiously, we are not seeing them cut out new purchases completely, signaling there is a distinct appetite to spend if economic conditions let them.”

Moderate chains, such as Penney’s, appear to be feeling the pressure of the consumers’ woes.

“The high-end guys are showing their consumers are not feeling the pressure of unemployment, but the moderate price players seem to be in that spot and they are not only feeling it now, but they could continue to feel it as the year progresses,” said Kevin Regan, senior managing director at FTI Consulting.

Regan said people were “anxious” over home sale costs, unemployment and higher cotton prices, which will be seen in back-to-school offerings.

How consumers will react to rising apparel prices remains one of the second half’s biggest question marks.

Wholesale prices for U.S.-produced apparel rose 0.2 percent in May compared with April and were up 2.4 percent against a year earlier, according to the Labor Department’s Producer Price Index.

“We did see a drop again in raw cotton prices of around 24 percent in May,” said Gregory Daco, principal U.S. economist at IHS Global Insight. Spot prices for cotton fell to $1.65 a pound as of Tuesday from $2.16 a pound in April.

“That should alleviate some of the pressure on domestically produced goods and imported goods,” Daco said.

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