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May Retail Sales: Five Stocks to Watch

May same-store sales look to be a mixed bag. Here are five retail stocks to watch heading into sales reports.

NEW YORK (TheStreet) -- May same-store sales will be relatively unimportant when stacked next to massive macro-economic shifts that have the potential to reverse what has been a revival in consumer spending.

"Overall consumer spending continued to improve going into June 2010, in our view, despite widespread fears that a new slowdown was underway," said Richard Hastings, consumer strategist at Global Hunter Securities. "We believe the risk is increasing that lower income consumers could pull back again."

Investors will focus on any negativity coming out of the month. Following a disappointing April, the question remains whether the blow-out March numbers actually came from a pent-up demand or were solely due to an earlier Easter holiday.

"Hedge fund investors we talk to are skeptical about the recovery and second half sales are more likely to want to short into rallies," J.P. Morgan analyst Brian Tunick wrote in a note. "Talk about growing inventories and higher product costs in the fourth quarter and 2011 are also making investors more skittish."

For the final week of the month ended May 29, sales inched up 0.6%, following two weeks of declines, according to the International Council of Shopping Centers. The research firm predicts same-store sales for the month will grow between 2% and 2.5%. It previously forecast a 3.5% jump.

The cooler weather during the month, Europe's credit woes, sell-off in the stock market and later Memorial Day, which shifted some sales into June, are being blamed for what may be a lackluster month.

Sourcing costs are also a growing concern for retailers

and investors should keep an eye out for any color provided by companies on production costs for the second-half of the year and how it will impact gross margins. Teen retailers, in particular, will be in the spotlight, heading into the critical back-to-school season.

Still, the month will be mostly a non-even, with analysts not expecting any revisions to earnings guidance since more retailers just finished reporting their first-quarter results.

June will be a much more important month this year. It is the only five-week month of the quarter and will now have an added boost from Memorial Day and potentially warmer weather.

On a company by company basis, May will be a mixed bag, says analyst Jennifer Black of the firm bearing her name. Retailers will either significantly beat consensus estimates or barely post positive results.

Here are some stocks to watch heading into May sales results on Thursday...

5. Abercrombie & Fitch

Despite having the easiest sales comparisons of any player in the retailing universe,

Abercrombie & Fitch

(ANF) - Get Report

is still expected to post yet another month of weak sales.

Analysts are calling for a drop of 0.1%, but Phoenix Partners Group analysts Robert Samuels says investors should be prepared for lower-than-expected results from the teen retailer. He is hearing the decline could be as much as 6%.

"At best, the Abercrombie & Fitch message is confusing, at worst, the aspirational aspect of the brand is collapsing under a slew of price cuts and lower quality levels," Brean Murray analyst Eric Beder wrote in a note.

Abercrombie & Fitch has been an international story, but there is now a growing fear that the company is expanding overseas as Europe poses risks.

4. Aeropostale

While Abercrombie & Fitch is expected to disappoint,

Aeropostale

(ARO)

may actually surpass forecasts. Analysts are calling for the teen retailer to grow sales 2.3%, but Samuels says he is hearing results could come in between up 3% to 4%.

"Our only fear is that the company is among the most affected by holiday shifts in our universe, as such, while we believe it will easily best its competition, we believe upside will be muted," Beder wrote. He isn't expecting Aeropostale to raise the low end of its guidance, but is looking forward to a blowout June at the company.

3. American Eagle Outfitters

Heavy promotions in May could push

TheStreet Recommends

American Eagle Outfitter's

(AEO) - Get Report

sales slightly positive, but this will come at the expense of margins. Analysts predict a 1.9% uptick in same-store sales.

"American Eagle is still having trouble finding the right balance between margins and promotions to keep up with Aeropostale," Samuels wrote in a note.

The teen retailer already said during its first-quarter earnings report that May was off to a slow start and issued second-quarter forecast that missed estimates.

Inventory levels also pose a concern, as management has become more aggressive in stocking merchandise. Beder said this will hurt American Eagle going forward.

2. Macy's

Macy's

(M) - Get Report

sales are expected to continue on their upward trajectory and, as a result, the department store was upgraded to overweight from equal weight by Morgan Stanley on Tuesday.

Analyst Michelle Clark said Macy's should continue to grow its market share. She also set a $27 price target on the stock, which represents a 28.5% increase from its current value.

Wall Street predict Mays sales will rise 0.8%. For the year, Macy's is forecasting a 3.5% increase in comparable sales.

Still, investors have been concerned about Macy's future growth story, with the stock down 10% since its first-quarter earnings report.

1. Target

Target

(TGT) - Get Report

is returning to favor, as analysts foresee a 1.2% rise in May same-store sales. This would mark Target's sixth consecutive month of a sales gain.

The discount sector, overall, is expected to post a 5.7% surge during the month, according to estimates from Thomson Reuters.

In its first quarter, the discounter said it saw traffic improve and received a boost from sales of discretionary items like apparel and home goods.

Target also said on Wednesday that it is expanding its offering of

Amazon's

(AMZN) - Get Report

Kindle to all 1,740 stores beginning this weekend. Target became the first bricks-and-mortar store to carry the e-reader last month.

-- Reported by Jeanine Poggi in New York.

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