Best Improvement In Retail Sales Ever

Time, Time Management, Stopwatch, Industry, Economy

Image Source: Pixabay

The hotly anticipated April retail sales report was released this Thursday. It was fantastic. It destroyed estimates. Estimates are usually way off when really good or bad numbers come out, even if they are expected. Economists don’t want to seem outlandish and predict 10% monthly sales growth even if that’s likely. Specifically, headline monthly growth rose from -2.7% to 9.8%, which beat the consensus of 5.6%.

As you can see from the chart below, the monthly 14-month rate of change hit a record high by far. This chart looks a lot like some of the rallies we have seen in stocks. We know for sure that this growth rate won’t be maintained. Investors should realize this.

We will see if stock market investors know this when results cool off. Be careful of any management teams claiming the current improvement will be maintained. We expect that it won’t be in most cases.

The larger the company, the less likely for it to maintain this trajectory. That being said, retail sales will probably be very strong in the next few months especially in the leisure and hospitality industry. In theory, investors should be modeling out the next 10 (or more) years of earnings growth, not a couple of quarters.

In fact, one quarter of results makes up an insignificant amount of a firm’s intrinsic value. However, we saw stocks react to short-term changes last year. It’s interesting and can be rewarding to try to figure out what is actually priced in.

Details Of Retail Sales

Excluding vehicles, monthly sales growth was up from -2.5% to 8.4%, which beat estimates for 5%. Of course, all the monthly comps were easy. However, the yearly comps aren’t great to use either because the pandemic affected the second half of March 2020. The all important control group had 6.8% growth, which more than doubled estimates for 3.5% growth.

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Disclaimer: The content in this article is for general informational and entertainment purposes only and should not be construed as financial advice. You agree that any decision you make will be ...

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