New York, NY, June 2, 2006--Defying rising gasoline and utility prices and extending their April shopping spree, consumers rushed to shopping centers and malls in May, though there were signs that lower-income consumers may be starting to feel the energy squeeze.
Retailers posted mostly higher May same-store sales on Thursday. That bucked the tone set by Wal-Mart Stores Inc., which said it is seeing increasing signs of consumer worry and slower store traffic amid rising gas and utilities prices.
It even flouts what consumers themselves are saying -- and that's that they will rein in spending as they dig deeper into their pockets to fill up their gas tanks, according to a recent study by the National Retail Federation.
All that set off fears going into the onslaught of monthly sales results that consumer spending was finally beginning to wane and it would be apparent in May's numbers.
"They underestimate the industry," said Richard Hastings, economic adviser at Bernard Sand. "All this stuff about gasoline and inflation being the exclusive thing to deflate the consumer was wrong from the get-go.
"Consumer spending is still very robust and the economy is hot," he said. "When you see something like that it means that the consumer is not going to buckle and they don't. It takes a lot to change habits."
Sales at stores open longer than a year, an industry benchmark known as same-store sales, were 4.4% higher over last year for the nation's largest chain stores, according to Thomson First Call.
Analysts had projected an average 3.8% increase.
Much of the same came up at the International Council of Shopping Centers, which was expecting a 3% increase but tallied a 4.1% gain instead.
"It was a surprisingly strong performance with pretty good breadth to it," said ICSC's chief economist Michael Niemira.
Pockets of strength were most evident in teen wear and some specialty retailers. But even a couple of department-store retailers, the perennial poor performers, caught investors off guard
J.C. Penney Co., delivered same-store sales that were 11.1% higher than last year's. That blew past the 2% forecast reached by analysts reporting to Thomson First Call.
Penney said sales were strong across all merchandise categories everywhere in the country and raised its second-quarter earnings outlook by 2 cents a share to 62 cents a share. At Thomson First Call, analysts were looking for earnings of 61 cents a share.
But there were signs that escalating gasoline prices were taking their tolls on some consumers. Wal-Mart sounded the horn by noting that its sales were getting squeezed by consumers waiting on twice-monthly paychecks before they shop.
That's called a "paycheck cycle," and Wal-Mart blamed higher prices at the pump and for utilities for a "more pronounced" rotation last month.
"Fuel prices continue to be a top concern for our customers," CFO Tom Schoewe said in the sales release Thursday. He's now seeing June sales rising by 1% to 3% --considered a relatively weak showing.
Costco Wholesale, which reported quarterly results on Wednesday that were just shy of Wall Street's expectations, said that higher gasoline prices have crimped profit margins and probably will continue to do so.
Still, Costco outpaced expectations by delivering a 10% increase in comparable-store sales vs. the 7.3% forecast.
Target Corp., beat expectations with same-store sales that were 5.7% higher vs. a 4.8% estimate at Thomson First Call.
"Wal-Mart continues to march to its own drummer," Niemira said. "It is not the bellwether of the whole industry."
"When Wal-Mart talks about paycheck cycles that tells you a lot about their customers," he said. "Target isn't saying the same thing."
