Don’t Get Too Excited About Record May Retail Sales Just Yet

Retailers including Macy’s
M
, Nordstrom
JWN
and Gap
GPS
saw sharp stock gains on Tuesday after the latest government data showed May retail sales posted a near 18% jump from April, the largest such increase on record after a record decline. With the dramatic rebound, the biggest question is, is the coronavirus-ravaged retail sector back? 

Well, digging through the same batch of the government data can offer some clues. Compared to a year earlier, retailers’ May sales actually slumped 6.1%, with sales in the three months since March falling a combined 10.5%, according to data from U.S. Commerce Department. Clothing retailers’ sales, even though almost tripling in May from April, plunged 63% from a year earlier. The same pattern can be seen across department stores, home furnishings sellers, restaurants, and electronics retailers. 

“Full recovery is still a long way off,” said Jack Kleinhenz, chief economist of trade group National Retail Federation, in a note Tuesday, adding stimulus money and supplemental unemployment checks helped fuel consumers’ pent-up demand in May. “Spending has improved considerably but it’s still far below where it was a year ago… We are likely to remain on a roller coaster for a while.”

Comparisons against April also “have to be taken in context” as it was a full-month when “almost everything that wasn’t deemed ‘essential’ was shut down,”  he said. 

As U.S. economy gradually reopens and some restaurants and non-essential retailers began to open their doors for curbside pickup or takeout and delivery, spikes that recently were reported in some states make yet another wild card threatening any nascent recovery. Meanwhile, looting and vandalism fears remained another worry that kept many stores still boarded up and closed in cities like New York. 

“With unemployment still up in the low teens, retailers still have a long road out of the woods,” said Ken Perkins, president of research firm Retail Metrics, in a report Tuesday, adding May’s year-over-year drop was the second largest since the Great Recession. 

Many retailers also were already struggling before the pandemic worsened their plight and further squeezed their liquidity. For instance, department stores’ 26% slide in May sales from a year earlier marked the group’s 22^nd straight decline while appliance and electronics stores’ 30% year-over-year plunge in May was that segment’s 18^th consecutive drop, Retail Metrics data showed. 

The shakeup in the industry continues. Women’s clothing retailer J. Jill, which gave a “going concern” warning earlier this year, on Monday said it reached “forbearance agreements” with its lenders to give it until July 16 to comply with some terms. Gym operator 24 Hour Fitness on Monday joined rival Gold’s Gym in filing for bankruptcy, following a slew of other brick-and-mortar operators including J.C. Penney, J. Crew and Neiman Marcus that have filed for Chapter 11 since the outbreak. 

Meanwhile, while more crowds can be seen outside of some restaurants and bars, leading to May food service sector sales rising 29% from April, business slumped by two-fifths compared to a year earlier’s receipts, Commerce Department data shows. 

A case in point, fast food giant McDonald’s
MCD
said Tuesday while U.S. comparable sales “steadily improved” throughout the months of April and May, those sales and customer visits still declined from a year earlier, especially because stay-at-home consumers are having more breakfast at home. 

“Breakfast will face slow recovery,” said Stifel analyst Chris O’Cull in a report Tuesday. Before the pandemic, breakfast represented 25% of McDonald’s U.S. sales and was its most profitable day-part business, he said. 

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