Key Points:
- Broadly speaking, we expect May retail sales to be a touch lighter than April’s per Census’ monthly report. Softer traffic is the driver, partially offset by stronger average ticket, which we fear is more inflation.
- The slowdown is due to high gas prices and the backside of tax refunds. There also appears to be some pull-forward in gas (and other categories) as consumers rushed to purchase items before inflation worsened.
- Observed traffic (per Advan) for clothing stores and athleisure appears to be slowing due to less lift from GLP-1 adoption for weight loss.
- Strengthening segments include luxury (The Devil Wears Prada 2), large shopping malls with movie theaters (Star Wars: The Mandalorian and Grogu), and Amazon (more same-day delivery of groceries).
- At this time, we expect June to slow further (difficult comp, calendar, worse inflation, and no stimulus).
Broadly speaking, the pace of traffic (NRF calendar) in May was down from April’s. However, average ticket accelerated, leaving a wash between the two. We suspect that the acceleration in average ticket reflects more inflation. In total, and excluding auto, we expect May’s pace of sales to be a touch softer than April’s per the Census Bureau’s monthly report (June 17th). CPI will be released on June 10th and that’s likely to be more meaningful to global financial markets. Home improvement experienced deceleration in both traffic and ticket, reflective of the month’s cooler temperatures and the increase in the 30-yr mortgage rate.
General merchandise store sales should be similar MoM with traffic less and ticket more. Costco’s reported May numbers for the US were traffic +3.7% and ticket +5.0% vs. +3.8% / +4.2% in April. An acceleration in ticket was also observed at Walmart, Target, DG, and Kroger. Observed traffic at Costco (+2.9%) was also similar MoM. In our review of Costco’s results, we wrote, “management (our read) also suggested a softer May.” As that was not the case, we misread CFO Gary Millerchip’s tone and comments, and we’ll file that away. Dollar General’s traffic accelerated slightly, and we take it that this fueled management’s favorable tone on its earnings call.On higher gas prices, Dollar General’s CEO Todd Vasos said, “During the quarter, many of our core customers reporting cutting back on other household expenses, including food purchases due to rising gas prices. This pressure has been more pronounced on customers in rural communities as they work to minimize trip distance and make trade-offs in their search for everyday affordability and value.” Using Advan data for traffic and our Claude.ai MCP, we asked the following to quantify the impact on rural markets. Below is the result (comp-traffic was reported to increase +1.4%, below we show average traffic), net-net, non-rural markets were 360bps stronger in traffic than rural markets:
Back to retail categories, that clothing stores slowed further, as did sporting goods, suggests that our theme of apparel being in a super-cycle (GLP-1 drugs) is now lessening. We suspect this may be due to GLP-1 uptake reaching a broader set of consumers (vs. the more affluent), with those consumers being less willing to spend significantly on a full new wardrobe of smaller-sized clothing. That suspicion also stems from a recent WSJ article -- Americans on GLP-1s Are Overwhelming Retailers With Their Nonstop Returns, with the article pointing to customers buying the same item in multiple sizes and returning the 2-3 that didn’t fit, in addition to customers buying one item and then returning it a month later for a smaller size (with the initial item worn during the interim). (Doesn’t this seem like a good opportunity for StitchFix?)Three remaining callouts:
- The traffic trend at full-service and limited-service chains both decelerated (-130bps / -90bps), but full-service independents (-33bps) outperformed. See our recent story here; we attribute the deceleration to fewer tax refunds and higher gas prices.
- Traffic to Amazon’s large FCs is similar MoM and up from Q1’s rate. As such, we suspect that spending on Amazon.com is above Q1’s rate (which we estimated to be +12%). Like with Q1, we believe that the grocery and consumables categories are the drivers, which is one of the reasons that conventional grocers are growing only 1%. Amazon’s June and Q2 will be stronger because of Prime Day moving to June from July.
- Prestige luxury continues to experience a strong lift from excitement surrounding The Devil Wears Prada.
At this time, we expect June to decelerate further due to a more difficult compare (~115bps MoM) AND a calendar shift; June ’26 holds 8 weekend days versus 9 last June. Additionally, CPI is running hotter, gas prices remain high, and tax refunds are further in the rearview mirror. Large shopping malls, with movie theaters, should outperform given two big theatrical releases: Star Wars: The Mandalorian and Grogu and Toy Story 5. (Malls did so in May as well.) Hopefully, the trend improves during the month as consumers are transitioning to a summer mindset and schools out; we’ll let you know. Additionally, we hope that the hotter CPI is less than we fear.
