May retail market: Monthly sales flat, below expectations; 1 new bankruptcy

U.S. retail sales posted virtually no growth in April over the previous month, though analysts say consumer spending will likely grow as businesses continue to fully reopen from shutdowns and restrictions caused by the COVID-19 pandemic.

The flat monthly growth in April missed the consensus estimate of economists polled by Econoday of a 1.0% gain. Still, the fact the economy maintained such a high level of spending from March's monster growth is positive and pandemic-weary consumers are expected to shift their spending on goods to formerly restricted activities like travel and dining out as the economy reopens, analysts said.

"A flat reading coming on top of a very high level is really not that much of a disappointment ... If anything we are still at a very high level if you look at where retail sales are," said Rubeela Farooqi, chief U.S. economist at High Frequency Economics, in an interview.

Consumer prices jumped in April as the number of overall retail jobs slipped. A single retailer filed bankruptcy in the period from late April through early May, while new entrants shuffled a list of the retailers most vulnerable to defaulting on their debts.

Retail sales

U.S. retail and food services sales in April hit $619.92 billion, according to advance estimates released May 14 by the U.S. Census Bureau. The figure nearly matched March's revised figure, which represented a 10.7% jump over February spending, according to government data.

Stimulus payments and pent-up demand from consumers tired of idling at home under pandemic restrictions are fueling spending across the economy, analysts said.

"We saw the effect of direct checks in the March numbers," Farooqi said. "And that effect had to dissipate a little bit in April."

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April's retail sales were up 51.2% from a year ago when the shock of the pandemic began to work its way through the economy. Compared to April 2019, sales rose 21%.

A busy earnings week ahead with Walmart Inc., Macy's Inc., Home Depot Inc. and Lowe's Cos. Inc. all reporting will shed more light on the retail market, said Nick Shields, a senior analyst at Third Bridge, in an interview. Retail executives have previously expressed caution for the remainder of 2021 based on expectations that consumer spending will shift to travel, leisure and services.

"Every single one of those management teams on those calls is going to be expected to talk about their forward-looking outlook," Shields said.

Five of 10 major retail categories posted modest sales growth with sales at motor vehicles and parts dealers rising 2.9% on the month. Meanwhile, sales at clothing and clothing accessories stores fell 5.1%. On a year-over-year basis, every major retail category posted sales growth during April.

The economy does not need to see big growth in retail spending moving forward if spending remains at a high level, said Calvin Schnure, a senior economist at Nareit, in an interview. Even small increases from here going forward is a plus for the economy as people start earning more and spend more on services rather than goods, Schnure said.

"In June you're going to see people saying, 'I can finally spend an afternoon at the mall. I can buy some discretionary purchases I hadn't planned,'" Schnure said. "You're going to see more spending because people do have this pent-up buying power."

Consumer prices

Consumer prices rose 0.8% month over month in April on a seasonally adjusted basis. On a year-on-year basis, the consumer price index increased 4.2% before seasonal adjustment, according to the U.S. Bureau of Labor Statistics.

Prices for used cars and trucks rose 10% in April, which marked the biggest one-month increase since 1953 and accounted for over a third of the overall seasonally adjusted increase. Core CPI, which excludes food and energy prices, rose 0.9% in April, marking the largest monthly increase since April 1982.

Bankruptcy

One Market Intelligence-covered U.S. retail company went bankrupt between late April and early May, pushing the year-to-date count to 12.

L & L WINGS, Inc., a private beachwear chain that does business as Wings, filed a voluntary petition to reorganize on April 24 in the U.S. Bankruptcy Court for the Southern District of New York.

Employment

The retail sector lost 15,000 jobs last month, representing a slight monthly decline of 0.1%, according to government data.

Food and beverage store jobs fell 1.6%, 49,400, to 3.1 million jobs. Meanwhile, sporting goods, hobby, book and music stores added 20,400 jobs, representing a monthly increase of 4.4%.

Vulnerability

A May analysis of the one-year probability of default scores identified 15 public retailers with scores ranging from 11.7% to 32.8% and corresponding implied credit scores of "ccc+" to "ccc-." The probability of default scores represent the odds that each company will default on its debt within a year, based on financial reports and accounting for different macroeconomic factors.

Health supplements retailer Twinlab Consolidated Holdings Inc. rose to the top of the list with its one-year probability of default increasing to 32.8% from 24.8% a month ago.

In a May 19 email to S&P Global Market Intelligence, Twinlab Senior Director of Marketing Yamit Sadok said the company's priority over the last year has been right-sizing itself and reinvesting in its brands, including narrowing its focus to its top-selling and most in-demand products.

Twinlab's performance over the last 12 months has also resulted in positive cash flow for the first time in more than a decade, Sadok said.

Computer and electronics retailer Simply Inc. was among May's new entrants with odds of defaulting in a year at 22.9%, the fourth-highest among retailers on the list.

Simply did not respond to a request for comment.