The S&P Retailing Index fell 3.5% in April, compared to a 6.0% increase for the S&P 500 (INDEXSP:.INX), but the downward trend covers up some good news for the rest of the year. Discount stores in particular have benefited from better consumer confidence, and e-commerce is proving to be accretive for at least some retailers.

J.C. Penney underperformed with other department stores

The apparel companies covered by Nomura analyst Robert Drbul did better as a group than the S&P Retailing Index, losing 1.9% last month. The branded apparel sub-sector (including PVH Corp (NYSE:PVH), Hanesbrands Inc. (NYSE:HBI)) was the top performer, gaining 3.8% last month, while discount stores (Wal-Mart Stores, Inc. (NYSE:WMT), Costco Wholesale Corporation (NASDAQ:COST), Target Corporation (NYSE:TGT) also picked up 3.3%. Department stores and broadlines (including Kohl’s Corporation (NYSE:KSS), Macy’s, Inc. (NYSE:M), J.C. Penney Company, Inc. (NYSE:JCP) underperformed the broader retail index, dropping 6.4% while the luxury and footwear (Deckers Outdoor Corp (NASDAQ:DECK) groups lost 4.1% and 3.8% respectively.

Even if the weak 1Q14 revenues can be blamed on bad weather, the promotional sales environment that has put margins under pressure isn’t letting up. A recent Nomura conference with retailers suggests that pent-up demand is starting to pick up, but if retailers can’t recover their margins at the same time it may not drive profits as much as investors are hoping.

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Strong macro could drive discretionary purchases

“Although we have entered 2014 with some caution, we believe the consumer could benefit from some tailwinds versus last year, including no additional payroll tax increase, ‘real’ raises, a multiyear U.S. stock market run, a stable and recovering housing market, and a shift to discretionary purchases,” writes Drbul in a May 1 report.

Consumer confidence hit a six-year high in March, and even though it dipped slightly in April a strong jobs report should give it a boost in May, even if other economic data is mixed.

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E-commerce may be a key differentiator

Even though Drbul is optimistic about consumer spending returning this year, gas prices are trending upward. Any increase reduces middle class disposable income, but Drbul notes that there is a behavioral shift when prices go above $4 per gallon causing consumers to save more. This could make the transition to e-commerce even more important, which could act as a key differentiator among apparel stocks. E-commerce has proven to be lucrative for Deckers Outdoor Corp (NASDAQ:DECK), with margins in the 40% range, and Macy’s, Inc. (NYSE:M) CFO Karen Hoguet said that its e-commerce business was accretive to the company’s bottom line at the Nomura conference, while Kohl’s Corporation (NYSE:KSS) e-commerce has become a drag on margins.

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