So much for the idea that the economic rebound would see a return to strong pricing power.
Wal-Mart (WMT), perhaps the most deflationary force in the history of our republic (tied with the internet, perhaps), is set to cut prices on over 10,000 items, according to WSJ.
The news comes a day after a slew of retail sales that, on the surface, seemed to be showing gangbuster growth (though there were a handful of reasons to temper your enthusiasm).
Of course, that won’t stop analysts and the street from going insanely gaga for retail right now.
Here’s Bill Dreher of Deutsche Bank with what we think is the status quo right now on retail:
Our Broadline sales index increased +8.3% in March (vs. -4.6% LY), well ahead of +6.1%
consensus and our +6.8% est. March sales results managed to surpass lofty expectations
across all sub sectors of Broadline retailing, as top line strength was no longer limited to just
Merchandise mix also appeared to be very strong, led by the high margin category of apparel.
JCP was the only retailer to just meet consensus, with every other company reporting March
sales beats, as sales appeared to be sluggish in Penney’s home category. Basically, the
greater the percentage of apparel sales a retailer had, the stronger March comp results were,
which drove particularly strong sales at the department stores, continuing a four month trend.
The department stores’ +12.5% comp easily beat the +7.9% consensus est and our +10.8%
est. The biggest outperformance came from KSS, JWN, SKS, and DDS.
As a standalone month, March’s monthly result was the best performance since prior to the
start of the recession (best sales since Nov 2007). March was also the seventh consecutive
month of sales increases, which will likely hold up even after we get the April results (March
+ April) to adjust for the shift of Easter sales into March of 2010 from April of 2009 (which
would make eight consecutive months of sales increases).
We also believe that the fundamental strength of consumer spending (as March built on the
success of February sales, in which our index rose +3.4%) combined with historic high
temperatures throughout much of the Northeast since Easter, should help drive continued
sales momentum in April.
March results appear to signal the end of the consumer spending recession, as consumers
have returned to pay full price, and drive brisk sales, particularly in the first three weeks of the
month, even ahead of the Easter sales shift benefit.
Customer traffic into the stores appeared to be the critical catalyst, and we would expect this
fundamental core trend to continue, despite the April numbers to be seasonally weaker than
March due to the Easter shift (by 400 bps to 800 bps, with TGT and JWN at the upper end of
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