By Andria Cheng

Retail stocks rose Monday on expectation that retailers' May sales report this week may show further signs of stabilization in an industry that has been battered by across-the-board consumer cutbacks.

The S&P Retail Index (RLX) rose 3.2% to 328.99.

Pent-up demand, warmer weather, less steep levels of promotions from the holidays and improved consumer confidence are expected to lessen the decline in demand in May, analysts said. Retailers have controlled inventory to help reduce discounts.

Discounters and value oriented retailers such as Aeropostale Inc.(ARO) are still expected to outperform their pricier rivals such as Abercrombie & Fitch Co. (ANF), analysts said.

While analysts estimated Gap Inc. (GPS), the largest U.S. clothing chain, to post a decline of about 3% to 5% because of lower sales at its namesake and Banana Republic chains, its discount unit Old Navy is expected to show an increase, analysts said.

Wal-Mart Stores Inc. (WMT) shares were flat at $49.77 ahead of the company's annual shareholders meeting Friday. Wal-Mart announced last month it plans to stop reporting monthly same-store sales.

-By Andria Cheng; 415-439-6400; AskNewswires@dowjones.com