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3 Key Takeaways From the April Retail Sales Report

By Jeremy Bowman – Updated May 15, 2020 at 4:29PM

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A report from the Census Bureau provides a startling window into the collapse of the U.S. economy.

As expected, retail sales in the U.S. continued to plunge in April. 

With much of the country shut down to prevent the spread of coronavirus, retail sales dove 16.4% from March, according to data from the Census Bureau. On a year-over-year basis, sales fell 21.6%. Both were record declines for as long as data has been kept (since 1992). 

Business was down in almost every category, which wasn't a surprise, but there were some revealing nuggets of information for retail investors. Here are three data points you should know about.

An arrow going down on a stock chart

Image source: Getty Images.

1. Home improvement sales were solid

Unlike a number of retailers, Home Depot (HD -0.86%) and Lowe's (LOW -1.39%) have been quiet about their business performance during the pandemic. Home Depot said it cut back on store hours to allow for more cleaning and restocking of key items, and canceled its spring promotions and the additional hiring that usually comes with them to allow for proper social distancing inside stores. 

Both retailers offered bonuses to employees, and Lowe's said it would spend more than $250 million in extra pay and safety improvements because of COVID-19. 

Some had speculated that Americans cooped up in their homes with limited ways to spend money had chosen to focus on home improvement projects. Internet searches also showed increased interest in such activity. Indeed, home improvement retail sales held up well in April. Though they were down 3.5% from March to $32 billion on an adjusted basis, they actually rose slightly from last April, up 0.4% from a year ago. 

That should bode well for Home Depot and Lowe's as they report earnings next week.

2. Grocery sales remain elevated

Supermarket sales have pulled back from their heights in March when Americans were focused on stockpiling food and other essentials as shutdown orders were enacted. But in April, they were still up significantly from a year ago. Despite sales at grocery stores falling 13.2% from March to April to $64 billion, that figure still represented a 13.2% increase, the same pace, from last April, indicating strong demand for groceries even after the initial stocking-up period.

Considering restaurants across much of the country remain shuttered or limited to takeout and delivery and even those that are open have limits on capacity, demand at supermarkets is likely to continue to be elevated as long as social distancing practices are in effect.

That should be good news for operators like Walmart and Kroger, the nation's two biggest grocery sellers, which have hired a combined 300,000 additional workers in recent weeks. Other companies that should benefit include CostcoTarget (TGT -2.24%), and pure-play supermarket chains like Sprouts Farmers Market.

3. Almost every other segment is getting devastated

It's hard to understate the damage in some corners if the retail industry. With so many clothing stores closed during April, sales have virtually evaporated. Sales in the segment fell 78.8% from March to April to just $2.4 billion, and on a year-over-year basis, they were down 89.3%. It was already clear that the apparel industry was getting hammered by the pandemic amid the many warnings from retailers like Macy's and bankruptcy filings from J. Crew and Neiman Marcus. However, those numbers, along with the difficulties ahead in reopening stores, show the drastic challenges the industry faces.

Sales at restaurants and bars tumbled 48.7% from a year ago to $32.4 billion, showing that some-sales recoveries at fast-food chains were not nearly enough to lift the sector as a whole. With so many locations still closed, those declines are likely to persist in the coming months, though they should show some improvement as restaurants reopen. Other non-essential categories like electronics, furniture, and sporting goods all fell by around 50% or more. Even the auto segment, retail's biggest, was down by about a third to $68.5 billion. And pharmacies and drug stores, which saw a bump in March, fell back in April with sales declining 10.4% from a year ago, showing even some essential stores were losing sales.

Not surprisingly, one category that shined was non-store retailers, made up almost entirely of online retail, where sales jumped 21.6% from the prior year. That's encouraging news not only for online retailers but also brick-and-mortar chains like Target that have built up their digital channels in recent years. Target said that digital sales jumped 275% in the first three weeks of April, and strong growth in the category is likely to continue as consumers are reluctant to visit stores while the virus is circulating.

Investors will get further insight into the sector when several major retailers post first-quarter earnings reports next week. While sales likely bottomed out in April with so many stores closed, it's going to take at least several months for retailers to recover from the impact of the lockdowns. Some never will.

The longer the pandemic remains a factor in Americans' lives, the deeper the damage will ultimately be to the retail industry.

 

Jeremy Bowman owns shares of Target. The Motley Fool owns shares of and recommends Home Depot. The Motley Fool recommends Costco Wholesale and Lowe's and recommends the following options: long January 2021 $120 calls on Home Depot and short January 2021 $210 calls on Home Depot. The Motley Fool has a disclosure policy.

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Stocks Mentioned

The Home Depot, Inc. Stock Quote
The Home Depot, Inc.
HD
$275.94 (-0.86%) $-2.39
Lowe's Companies, Inc. Stock Quote
Lowe's Companies, Inc.
LOW
$187.81 (-1.39%) $-2.65
Target Corporation Stock Quote
Target Corporation
TGT
$148.39 (-2.24%) $-3.40

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