Taking a Look at the February Retail Sales Report

Let's look at the February Retail Sales report, whose headline data put total retail and food services sales down 0.4% vs. January, slightly weaker than the -0.3% consensus forecast.

Excluding motor vehicle related sales as well as those for gas stations, retail sales were flat month over month. Our focus in this report as you know is retail as well as food services & drinking places, and they fell 0.1% and 2.2% vs. January.

As you also know, our preference is examining this report on a year over year basis, and that view showed retail only sales up 4.0% year over year, a slower pace than January's 5.5% figure. This while food services & drinking place sales rose 15.3% in February vs. 24.4% the prior month. While a far slower pace, that category posted the strongest year over year growth across the entire February report.

This tells us consumers continue to eat out, a positive for our Chipotle (CMG) shares.

No matter how we look at it, consumer spending slowed in February vs. January. With retailers reporting meaningful progress in working down bloated inventories from 2H 2022 during the post-holiday shopping season, consumers likely "shopped til they dropped" in January.

We find support for this line of thinking in the sharp drop in clothing & clothing accessory retail sales (up 4.3% YoY in February vs. 8.8% in January), sporting goods, hobby, musical instrument & bookstores (up 3.9% vs. 7.9% the month before), and department stores (up 2.5% vs. 6.1% in January).

That data adds some context to the continued increase in consumer credit during January, a factor that is likely taking its toll on February spending and more likely than not in the coming months as well. At the same time, we continue to think that as retailer inventories return to normalized levels, those companies will be far more selective in using discounting measures.

As we've shared before that removes one deflationary tailwind from the mix and during February we saw consumers lean further into digital shopping as non-store retail sales rose 8.5% vs. year ago levels, up from 6.8% in January. That's a positive for our shares of Amazon (AMZN) and UPS (UPS) .

With an eye toward our shares of PepsiCo (PEP) , grocery store sales climbed 5.8% vs. year ago levels in February, a faster pace than January's 5.4% gain. We've shared our view members should pick up PEP shares below $171, and those of you that are still underweight PEP shares relative to the portfolio's exposure are likely to get another chance to pick up shares in the near-term.

Amid the current market "shoot first, ask questions later" mood, PepsiCo's inelastic business model and rising dividend policy are likely to win investors looking for a safe haven. We can say the same for our shares of American Water Works (AWK) and Verizon (VZ) .

Action Alerts PLUS is Long CMG, AMZN, UPS, PEP, AWK, VZ.