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April Comp Preview: Retailers To Benefit From Positive Sales Trends
By: iStockAnalyst   Wednesday, May 2, 2012 10:31 AM
Interestingly, the strip-based offpricers appeared to be less weather-dependent," Oppenheimer analyst Pamela Quintiliano wrote in a note to clients.

In April, average gas prices declined to $3.83 from $3.94 in March. This represents a 2.8 percent sequential decrease and a 0.6 percent drop from last year. Among those states with the highest absolute gas prices, only California dropped sequentially and year-over-year. This should serve as an incremental benefit across the specialty retail landscape but especially to Ross Stores and Zumeiz which have an outsized portion of their base in the state.

Overall, inventories appear well controlled with rational promotional activity and limited markdowns, indicating a strong first-quarter earnings results.

In terms of stock performance, since last month's comp day, those retailers that report monthly comps have gained an average of 3.8 percent versus the SPX at 0.6 percent, the DJIA at 1.7 percent and the RLX at 4 percent.

Gap has led the group among those reporting this week with a 7.9 percent gain while Zumeiz has been the laggard with a 1.7 percent decline.

On a year-to-date (YTD) basis, the analyst said the monthly reporters have climbed 36.1 percent versus the SPX at 11.8 percent, the DJIA at 8.7 percent and the RLX at 24.2 percent. Gap has risen 53.8 percent YTD, followed by Ross Stores with a 31.4 percent gain for the same period. TJX is up 30.3 percent, while Zumeiz has recorded a solid 28.7 percent YTD gain.

"Given upward YTD momentum we believe that heightened expectations are largely priced in and that the group may soon become ripe for profit-taking with investors looking to put new money to work in those retailers that have not as actively participated in the recent rally," Quintiliano said.

Looking forward, RBC Capital Markets expect sales trends to remain fairly robust and think they are likely to pick up in May as regions around the country experience their first real burst of spring and new merchandise continues to flow into the stores.

Meanwhile, a continuation of more seasonal national weather patterns is expected in May. This should be mildly offset by a later Mother's Day (5/13 vs. 5/8 last year).

"However, we don't believe missy apparel looks terribly exciting and suspect that gifting may skew toward other categories. In conjunction with what we believe to be a pull-forward of warmer weather clothing demand among the broader group, we fear that 2Q may get off to a slow start," Quintiliano wrote.

Quintiliano noted that American Eagle Outfitters remains the top near-term pick as it has the potential for upside to first-quarter consensus given more robust inventories relative to peers served as a benefit in the strong late winter/early spring retail landscape. Abercrombie & Fitch and Urban Outfitters (NASDAQ:URBN) have significant upside opportunity in the second half with limited downside risk at current levels.

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