The most recent retail sales figures released by the US Census Bureau came as a relief to investors, providing more evidence that the US economy is emerging from its winter hibernation. Overall, retail sales were up 1.1% for the best performance in 1.5 years. Consumer purchasing activity is a key measure of economic growth; as such, it is closely watched by analysts and investors. While the figures were generally strong, some industries such as gardening and home-improvement supplies saw stronger growth, while others such as electronics stores declined.
Strong home-improvement demand
One of the more interesting points in the report was a strong uptick in building materials and garden-supplies sales, rising 3.6% for the three-month period. The figure has alleviated some worries over the slow patch in US housing sales, which is usually correlated to some degree with building materials. While many companies suffered over the winter period, the extreme weather also caused great damage which had to be repaired, benefiting home-improvement chains such as Lowe's (NYSE:LOW) and Home Depot (NYSE:HD).
The numbers are also a relief to Home Depot investors, the company's first-quarter report for the period ended Feb. 2 not particularly inspiring. Sales were down 3% year over year, and profit was more or less flat for the quarter.
However, the company gave some very upbeat guidance going forward, expecting overall sales to grow by 4.8% and comp-store sales to grow by 4.6%. These upbeat projections are more in-line with the March sales figures. Meanwhile, major competitor Lowe's is expecting sales and comp-store sales to rise by 5% and 4%, respectively, largely in-line with Home Depot's projections.
Notable losers: electronics chains
While the gains were widespread, industries as diverse as food services, car and car parts, and pharmacies all posting solid numbers, not all categories managed an increase. A notable decliner was the category of electronics stores, which posted an overall decline of 1.5% for the period. However, the figure should come as no particular shock to investors, with brick-and-mortar electronics retailers facing a tough time across the board.
RadioShack (NASDAQOTH:RSHCQ) is one of the most hard-pressed electronics retailers in the face of increased online competition, its latest report showing a disastrous 20% drop in revenue and a 19% drop in same-store sales. For the full year, same-store sales were down 8.8%, and the net loss widened to more than $400 million. As a result, the retailer has decided to close around 1,100 underperforming retail locations in order to prop up the bottom line.
Competitor Best Buy (NYSE:BBY) is performing better but still not delivering the full-blown turnaround many investors are hoping for. Fourth-quarter comp-store sales slid 1.2% in fiscal 2014, while they were down some 0.8% for the full year. The company expects the tough electronics retail conditions to continue throughout the year, as the overall consumer-electronics market continues to face headwinds.
The bottom line
Investors breathed a sigh of relief following the March retail sales report, a 1.1% increase beating analyst expectations and possibly indicating that consumers are coming out of their winter slumber. Most categories advanced, with an uptick in gardening supplies and home-improvement items alleviating some worries over a soft patch in the housing market. However, it wasn't all positive news, as consumer- electronics sales continued to decline. As such, investors should take note of continued strength in the housing market, for which Lowe's and Home Depot look like reasonably safe plays, while they should for now remain wary of brick-and-mortar electronics stores.