The Zacks Analyst Blog Highlights: AutoZone, CarMax, Exxon, Amazon and Walgreen

May 13, 2011

CHICAGO, May 13, 2011 /PRNewswire/ — Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: AutoZone (NYSE: AZO), CarMax (NYSE: KMX), Exxon (NYSE: XOM), Amazon (Nasdaq: AMZN) and Walgreen (NYSE: WAG).

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Here are highlights from Thursday’s Analyst Blog:

Retail Rises on Basics

Retail Sales were slightly below expectations for April, coming in with an increase of 0.5%, a tick below the 0.6% increase expected. That disappointment is more than offset by a big upward revision to the March numbers. They were revised to an increase of 0.9% from the original report of a 0.4% increase. Total retail sales are up 7.6% from a year ago.

The Retail Sales report covers far more than just the shopping malls and is a very broad-based measure of consumer spending. Since consumer spending makes up 70% of the economy it is a very important number. That overstates things a bit since retail sales are mostly about the sale of goods, not services, and services make up two-thirds of what consumers spend. Still, it is a pretty important thing to watch.

Including, Excluding Autos

Auto sales were a bit of a drag on overall retail sales in April, rising just 0.2% on the month, after falling 0.7% in March (revised significantly from an original decline of 2.3%). On a year-over-year basis they were up a solid 11.0%. That figure includes sales at parts dealers like AutoZone (NYSE: AZO) as well as the dealers like CarMax (NYSE: KMX).

Excluding autos, retail sales rose 0.6%, in line with expectations, down from the February rise of 1.2%, but down only after a big upward revision from 0.8%. The upward revision makes this a report a positive surprise, even if the headline number was below expectations and the ex-auto number was in line.

Year over year sales are up 6.9%. The year-over-year numbers are pretty robust, but keep in mind that these numbers are not adjusted for price changes, so part of the year-over-year gains simply reflect inflation. However, outside of food and energy, inflation is very tame.

8 Up, 5 Down

The growth was uneven, and that may be the more important story. There was a sharp slowdown from last month in many of the more discretionary types of retail sales. The report tracks 13 major categories of stores, of which eight were up and five down on the month. Year over year, all types of store are showing increases, ranging from 0.8% (Furniture stores) to 21.8% for Gas Stations.

Clearly, gas prices were the major factor in the increased sales at the corner Exxon (NYSE: XOM) station, not a sudden rise in the number of 44oz. fountain drinks being consumed. Actually the evidence suggests that the volume of gasoline sold is actually declining in response to higher prices.

Aside from the Gas Stations, which are clearly a special case, the next strongest group on a year-over-year basis was the non-store retailers — the group that includes the catalog and internet retailers like Amazon (Nasdaq: AMZN). They are up 15.5% year over year. As noted above, the Auto stores were up 11.0% year over year, the third and last group to be up double digits year over year.

Not surprisingly, the best performers on the month were the gas stations, where sales rose 2.7%, after a 4.1% rise last month (revised from 3.6%). Surging revenues at gas stations is not exactly a sign of strong economic growth. Money spent at the pump cannot be spent elsewhere, and much of that cash flows abroad, rather than recirculating in the economy, to pay for oil imports.

The other part of non-core inflation, food, also showed a significant increase, as sales at Grocery stores (and other stores selling food and beverages, excluding restaurants) jumped by 1.2% after rising just 0.2% in March (revised down from 0.3%). Year over year, the rise in Food sales though is relatively tame at 6.0%. Sales of food for the home are among the least discretionary purchases, along with gasoline.

Discretionary Takes a Big Hit

It was the highly discretionary types of retail sales that took it on the chin in April. Sales at Electronics and Appliance stores are Exhibit A. They plunged 2.2% on the month, reversing most of last month’s sharp 2.9% rise. Year over year, sales are up just 0.9%. However, on the electronics side of things, prices generally decline over time, so the situation is a bit of the flip side of what is going on at the gas stations.

As for appliance sales, they tend to be spurred by housing sales, both new and existing, and both have been soft. Furniture sales are also greatly influenced by home sales. People tend to redecorate when they move into a “new for them” house. Absent that, there are few purchases that are generally easier to put off until next month or next year than a new sofa or dining room table. Furniture sales were down 1.1% on the month, after rising 2.4% in March, and year over year are up just 0.9%.

With all the chatter about food inflation breaking out, one would expect to see a big pop in Grocery store sales. That was not really the case, as sales were up 0.3% for the month, down from a 0.5% increase in February. Year over year, sales were up 4.1%, well below the overall increase in retail sales. That is a bit of an indication that fears of food price inflation are a bit overblown, at least here in the U.S. Overseas they are literally a deadly serious problem, and are one of the sparks that ignited the unrest across the Middle East.

Certainly food commodity prices are way up, but raw commodities make up a pretty small part of the nations shopping cart. The price of wheat is a very small part of the cost of a loaf of bread for example. Spending at the grocery store is about as non-discretionary as spending gets, and tends to be more stable than other retail sales.

Spending at Health Care stores, such as Walgreen‘s (NYSE: WAG) also tends to be relatively stable, but there was a big turnaround there as well, with sales up 0.7% after falling 0.5% the month before, and up 6.3% year over year.

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