Retailers beat forecast

Feb. sales show best performance in five months

March 06, 2009|By MarketWatch

NEW YORK -U.S. retailers' February sales showed their best performance in five months, aided by pent-up demand for new spring merchandise, and Presidents Day and Valentine's Day sales.

Still, the better-than-expected performance didn't mean there's light at the end of the tunnel for retailers in the face of the across-the board consumer cutbacks, analysts said. They said some results were also driven by promotions that hurt profit margins. March sales will likely be negative with a calendar shift of Easter to April, they said.

Total retail comparable sales were flat in February, compared to projections of a drop of as much as 2 percent, according to the International Council of Shopping Centers.

Discounters and value-oriented retailers remained the outperformers, led by Wal-Mart Stores Inc., where sales jumped 5.1 percent, more than double the average analyst estimate.

Without the lift from Wal-Mart, total sales would have declined 4.1 percent, with apparel chains and department stores remaining the laggards, ICSC said.

"Are retailers out of the woods yet? 'No,' " said Peter Kwiatkowski, who helps manage nearly $19 billion in assets at Fifth Third Asset Management, which owns retail stocks including Wal-Mart. "Everybody is hurting. What do you have in your toolbox to deal with the environment is the key. Wal-Mart definitely has a lot of momentum right now."

Analysts caution that the better-than-expected reports were helped by better inventory control and point to Wal-Mart's surging sales as a sign that more people may simply be shifting their spending to cheaper stores. The rift between discount stores and luxury merchants widened in February as shoppers kept worrying about the economy.

Luxury retailers Saks Inc. and Nordstrom Inc. were among the worst performers, posting steeper-than-expected declines of 26 percent and 15 percent respectively.

With the economy in recession and rising job losses sending consumer confidence to a record low, value-oriented retailers, led by Wal-Mart, have won over customer traffic and loyalty with consumers increasingly concerned about their budgets, analysts said. Family Dollar Stores Inc. shares surged 11 percent after it gave a second-quarter profit forecast that exceeded Wall Street expectations after its comparable sales jumped 6.4 percent.

Meanwhile teen retailers Hot Topic Inc., benefiting from differentiated merchandise such as products tied to the movie Twilight, or Aeropostale Inc., known for its value positioning, also outperformed their specialty retail rivals such as Abercrombie & Fitch Co., which is sticking to its strategy not to discount in-season products. Abercrombie shares tumbled 15 percent.

Wal-Mart's U.S. sales rose 5 percent and climbed 5.9 percent at Sam's Club, both better than Wall Street expectations. Wal-Mart, with its "Save Money. Live Better" tagline, boosted traffic at its namesake chain. The company credited declining gas prices that significantly boosted household disposable income and even allowed more trips toward discretionary categories.

Costco Wholesale Corp.'s and BJ's Wholesale Club Inc.'s February sales both missed Wall Street expectations, with both retailers reporting weakness in apparel and other discretionary merchandise as shoppers snatched up food and other consumable items. BJ's said Wednesday that it improved its grocery selection and added more smaller-size packs to take share away from supermarkets.

Target Corp., with its heavier exposure to discretionary merchandise than larger rival Wal-Mart, is also increasingly promoting value and adding more food to the mix. Target sales fell 4.1 percent, slightly better than Wall Street expectations of a 4.8 percent decline.

Among the teen retailers, Hot Topic Inc. said sales jumped 11 percent, more than double analysts' average estimate. The Buckle Inc., also a teen retailer, posted a 21 percent jump in sales. Aeropostale Inc. saw a better-than-expected 11 percent jump in sales, helped by demand for its spring merchandise.

"We see the company's music/pop culture-focused merchandising strategy paying off at a time when we believe consumers are seeking differentiated product," said Standard & Poor's analyst Jason Asaeda, who raised his rating on the stock to "strong buy" from "hold."

The Associated Press contributed to this article.

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