How will a shorter spring season impact apparel companies?

Retail indicators

Both the International Council of Shopping Centers (or ICSC) Goldman Sachs Store Sales report and the Johnson Redbook Index report for the week ended April 19, will be released on Tuesday, April 22.

How will a shorter spring season impact apparel companies?

What is the Johnson Redbook Index?

The Index is a weekly measure, designed to capture same-store sales growth at chain stores, discount stores, and departmental stores. The Index provides guidance on retail sales trends, but covers only about 10% of the total retail sales in the country.

What is the ICSC – Goldman Sachs Retail Chain Store Sales Index?

The Index measures the change in same-store sales based on a sample that includes major retail chains that are statistically representative of sales in the retail industry. The Index reading does not include vehicle and restaurant sales. Like the Johnson Redbook Index, it covers only about 10% of the total retail sales in the country.

Highlights from last week’s retail sales reports (for the week ended April 19)

  • Retail sales growth slowed to 2.6% from 2.9%, on a year-on-year basis as per the Redbook Index, while the ICSC-Goldman Sachs Index reported year-on-year sales growth of 2.3%, up from 1.5% reported in the week ended April 12.
  • The ICSC-Goldman Store Sales Index, however, has shown a week-on-week decline of 0.3%.

Michael Niemira, ICSC vice-president of research and its chief economist, attributed the increase to warmer weather in the Western half of the country. He also said that cooler weather in the Eastern part of the country was holding back seasonal demand. ICSC forecasts that same store sales in April would spike by over 3%, compared to March when same-store sales recorded an increase of ~2.9%.

Retail sales outlook
This year, with a three-week late Easter, retailers expected the seasonal sales pertaining to Easter to shift to April from March. However, this has not quite materialized as much as anticipated, and several retailers are still blaming the weather. A delayed (and shortened) spring season would see retailers trying to get spring inventory off the racks in preparation for summer and we may see greater discounts from apparel retailers over the remainder of the spring season as a result. This would impact the earnings of the retail sector in the current quarter.

ETFs invested in the retail sector include the State Street SPDR S&P Retail ETF (XRT) which tracks the S&P Retail Select Industry Index. The Index is composed of the retail sub-industry portion of the S&P TMI. Top 10 holdings in XRT include department store chain, Sears Holdings (SHLD). Other major apparel retailers likely to be impacted by a shortened spring season are Abercrombie and Fitch (ANF) and American Eagle Outfitters (AEO).

Weekly retail releases, though providing data as to consumption trends in the economy, are likely to have less of an impact on fixed income ETFs, that is, the Vanguard Total Bond Market ETF (BND) and also the stock market (OEF). Monthly retail releases like the retail sales report issued by the U.S. Census Bureau will likely impact financial markets more.

Read Part 10 to know about other consumer confidence indicators due to release this week.