May comparable-store sales results are likely to strengthen the case that the recovery in consumer spending is having a difficult time gaining or maintaining traction.

This story first appeared in the June 2, 2010 issue of WWD. Subscribe Today.

The numbers, due out Thursday, will reflect not only the month’s generally cool temperatures and the migration of some Memorial Day sales into June, but also a host of daunting economic challenges.

According to Thomson Reuters’ estimates, May comps are expected to be up 2.6 percent, driven by a 5.5 percent comp gain from discounters. Department and specialty store comps are projected to be up 0.9 percent and 1.1 percent, respectively, while the teen sector is anticipated to yield a 2.2 percent comp decline. Analysts reported improvement in results toward the end of the month.

Broader macroeconomic and geopolitical issues — such as the unsettled debt of the Eurozone, a potential conflict between North and South Korea, growing impatience with the oil spill in the Gulf of Mexico and violent swings in the stock market — appear to be playing a large role in consumers’ spending habits, according to John Long, a retail strategist at consulting firm Kurt Salmon Associates.

“Even though some of this is considered at arm’s length from the U.S. consumer…it will certainly impact the way the consumer thinks of the economy,” Long said, explaining this “layering effect” of news has raised concerns of a potential “double-dip” recession.

Six months ago, there was evidence Europe was emerging from the recession and hope the U.S. was following suit, Long said, adding that even if a double-dip recession isn’t in the cards, recent events underscore just how “fragile and long” the recovery will be.

The shakeout will produce a mixed bag of numbers that could cause the stock market to fluctuate even more than it has in recent weeks, said J.P. Morgan retail analyst Brian Tunick.

“Glass-half-empty investors will focus on negative May comps following negative April comps and wonder how much positive February and March comps were pent-up demand or early Easter,” he said. “Hedge fund investors we talk to are skeptical about the recovery, and second-half comps are more likely to want to short into rallies.”

Tunick, who forecasts May comps to be flat to down 2 percent versus last year’s 2 percent decline, said the “good news is that…June and July, at down 6 percent last year, represent the easiest two months of the year” with respect to year-ago numbers.

According to Lazard Capital Markets analyst Todd Slater, “sentiment has turned so cautious” that more “negative surprises” are “unlikely.”

What’s more, “retail sentiment and stocks could recover into Thursday’s comp report,” as the final weekend in May generated a healthy sales boost for retailers, which helped to accelerate June trends.

Like last year, May was characterized by a “surge of warm weather during the last 10 days” of the month, which will likely provide a “boost” to sales at month’s end,” said Citi’s broadlines analyst Deb Weinswig.

Sales in Weinswig’s coverage universe are largely “on plan” for retailers like BJ’s Wholesale Corp., expected to report “above” its estimates of up between 5 percent and 7 percent. Nordstrom Inc. anticipates a positive 4 percent to 6 percent comp but is anticipated to come in “lower than plan,” she said.

Despite comp “misses,” earnings projections will remain stable, said Brean Murray, Carret & Co. specialty retail analyst Eric Beder. He characterized the expectations of many investors for a stronger turnaround by teen retailers during the now-concluded first quarter as unrealistic and noted that, while May is a “somewhat unimportant” month for the sector, opportunities for positive surprises might be limited.

“Why is virtually every trick in the retailers’ book, besides lower pricing, not working? The answer lies in the economics,” he noted. “Even with two quarters of positive GDP [gross domestic product], the teen and the 16- to 24-year-old customer remain in material economic pain. We see limited upside in the near term.”

But economic pain is universal, said Kurt Salmon’s Long, who added that in order for the current environment to stabilize there must be improvements in employment and housing.

Until then, expect “continued volatility,” he said. “Retailers will be taking a cautious view of the fall,” and will remain “wary of making any big bets.”

Investors took a similar approach to equities Tuesday as a late-day sell-off pushed the S&P Retail Index down 1.4 percent, or 6.17 points, to 437.28 Monday. The Dow Jones Industrial Average flirted with going below 10,000, retreating 1.1 percent, or 112.61 points, to 10,024.02.

Markets remained volatile as the Gulf of Mexico oil spill continued to worsen and investors tried to make up their minds on the U.S. recovery and the European debt crisis. The Dow hit as high as 10,218.33 before shedding about 100 points in the final half-hour of trading.

Shares of Macy’s Inc. slipped 1.5 percent to $21.88 despite an upgrade from Morgan Stanley analyst Michelle Clark, who shifted her view on the stock to “overweight” from “equal-weight.”

Concerns over May sales have pressured the stock, but Clark said those worries were unfounded and that Macy’s market share gains would continue with the help of its localization initiative and its centralized structure.

European traders pushed the DAX ahead 0.3 percent to 5,981.27 in Frankfurt, but the CAC 40 dipped 0.1 percent to 3,503.08 in Paris and the FTSE 100 declined 0.6 percent to 5,159.33.

Asian markets were down with the Hang Seng Index falling 1.4 percent to 19,496.95 in Hong Kong and the Nikkei 225 slipping 0.6 percent to 9,711.83 in Tokyo.

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