May retail sales numbers were much better than expected, sending stocks higher on Tuesday.

Overall retail sales rose 17.7% from April according to the Census Bureau, but were down 6.1% from a year ago, showing that while the economy is recovering, there is still work left to do. That was more than double the 8.4% growth that economists had expected, however.

The monthly retail sales report is closely watched even in a normal economy, as it offers a detailed look at consumer spending. But during the pandemic the monthly numbers have become especially important, as normal shopping habits have been turned upside by stay-at-home orders, social distancing, and general fears of the virus. 

With the latest snapshot of the U.S. economy hot off the press, let's take a look at the winners and losers last month.

A store clerk ringing up a customer for a pair of pants

Image source: Getty Images.

Winners

  • Walmart (NYSE:WMT) and other supermarket chains. While there was evidence from some restaurant chains that Americans had grown tired of feeding themselves and were increasingly relying on fast-food chains and restaurant delivery for their meals, the retail report shows that sales at food and beverage stores rose 14.5% from a year ago, and even increased 2% from April, when nearly all non-essential retailers were closed. That shows that a larger-than-normal share of food spending continues to go to grocery stores even as restaurants reopen and stay-at-home orders are lifted. Walmart posted strong comparable sales growth in its first quarter, up 10%. Considering the momentum in the grocery sector in May, the company may be poised for another quarter of double-digit growth -- it's the country's largest grocery retailer and has a competitive advantage with its online grocery and pickup programs, which should help it gain market share during the crisis.
  • Home Depot (NYSE:HD) and the home improvement sector. Sales at "building material and garden equipment supplies" stores, essentially the home improvement sector, jumped an impressive 16.4% from a year ago and were up 10.9% from April. Sales in the segment had been stable in April from the year before, but pent-up demand may be driving the spike in sales as some customers who stayed home in April ventured out last month. Additionally, it shows that home improvement spending appears to be taking share from other retail segments, especially discretionary areas, as a number of non-essential stores are still shut down and travel is not an option for most Americans. After being stuck inside their homes for several weeks and with extra cash they can't spend elsewhere, consumers are probably more focused on home improvement projects than they normally would be.
  • Michaels (NASDAQ:MIK) and similar stores. One surprise in the report was the sudden rebound in "sporting goods, hobby, musical instrument, & bookstores," which was up 4.9% year-over-year after plunging 44.7%. Though the category is largely non-essential, it serves consumers who, tired of spending so much time at home, are looking for activities that lend themselves to social distancing, whether those are sports and exercising, reading, music, or arts and crafts. In its recent earnings report, Michaels said that comparable sales were up by 11% at stores that had reopened, showing high demand for such activities. Similarly, Dick's Sporting Goods (NYSE:DKS) also recently reinstated its dividend program, saying that sales were strong at stores that had reopened.

Losers

  • Clothing stores had another ugly month, with sales in the segment down 63.4% year-over-year in May. Though that was better than April's plunge of 87.3%, it shows that apparel chains are still struggling to reopen and bring customers back. In particular, mall-based chains like Gap (NYSE:GPS), which is involved in a lawsuit with a landlord, have gotten hit hard by the pandemic. Many of the chains were struggling before in what was already an overstored industry. Combine the pressure from the pandemic with a relative lack of reasons to shop for new clothes, as Amercians are still working from home and generally avoiding social gatherings, and that explain why sales in the segment are down by more than half.
  • Restaurants and bars also continue to be hit hard by the crisis as sales at "food services and drinking places" were down 39.4% last month from a year ago. Though restaurants have now been allowed to reopen across much of the country, there are often capacity limits on the businesses to allow for social distancing, and tighter restrictions on bars, which don't easily lend themselves to keeping people apart. 

Other takeaways

Car sales saw a surprising recovery, as sales were down just 3.9% year-over-year in the month, improving from a drop of 33% in April. Though recessions are generally correlated with declines in car sales, the recovery shows Americans eager to resume car-buying, which may be aided by social-distancing needs as commuters have been avoiding public transit.

One of the clearest signs that daily life has still not returned to normal is that gasoline sales were down 30% in the month. Though that's partly because of lower gas prices, it also indicates that Americans are driving less frequently than they were a year ago because of the pandemic as many continue to work from home.

Though investors are clearly encouraged by the results, which were the fastest month-over-month growth numbers on record, they may have been artificially boosted by stimulus payments that went out in April. The May numbers may fit with other evidence of a "V-shaped recovery," but we'll have to see if consumer spending levels can continue to make a strong recovery, as fears of a second wave of infections are rising in some states and government assistance will soon begin to fade away.