By  on April 8, 2010

March was one for the record books.

Lifted by a winning combination of pent-up demand for new fashion, extremely weak year-ago comparisons, warm weather and an early Easter, retailers saw the largest monthly same-store sales increases of the decade as consumers came out spending last month and never stopped.

But whether March’s roar is a sign of resurgent consumer spending or simply a statistical anomaly will be easier to discern this month as retailing’s first quarter concludes.

Thomson Reuters pegged last month’s comparable-store sales gains at 9.1 percent, the strongest advance since it began tracking the metric in 2000 and well above the 6.3 percent increase expected. According to the International Council of Shopping Centers, March comparable-store sales rose “precipitously,” advancing 9 percent, the strongest reading since the 9.3 percent increase of March 1999. Like many of the retailers reporting, ICSC warned that some of the gains of March could be given back this month, when it expects a materially softer month with results flat to down 3 percent.

Nonetheless, March results still stood out, and for some, indicated deeper trends.

“This has to go down as one of the more impressive sales months on record in the past decade,” said Ken Perkins, president of Retail Metrics Inc. “The fact that retailers vastly exceeded already raised expectations suggests to us that there is more going on here than just the Easter shift and easy comparisons. Consumers are generally feeling better about their plight and are finally making discretionary purchases and beginning to trade back up a bit.”

The surprisingly strong performance by retailers helped lift the S&P Retail Index 6.13 points, or 1.3 percent, to 466.28, its highest close since Oct. 17, 2007. It also stabilized the rest of Wall Street as investors weighed the meaning of an unexpected increase in first-time jobless claims. (For more on stocks, see page 14.)

Even though discounters continued to perform well, the department store segment generated the best numbers in March with an average comp gain of 11.8 percent and not a single decline in the sector, according to WWD data. While Kohl’s Corp. led all broadlines retailers with a 22.5 percent increase, more than 10 points above expectations, upscale merchants Nordstrom Inc., Saks Inc. and Neiman Marcus Inc. impressed with increases of 16.8, 12.7 and 9.2 percent, respectively.

In contrast, Nordstrom’s comps fell 13.5 percent in March 2009, while Saks’ were off 23.6 percent and Neiman’s 31.2 percent. While all department stores tracked by WWD had comp declines that month, Kohl’s had the smallest, a 4.3 percent drop.

“There’s a certain level of exuberance in consumer spending…especially in apparel,” said Sherif Mityas, partner in the retail practice of A.T. Kearney, a global management consulting firm. “The recession has really helped department stores and forced them to rationalize their inventory.”

The strength across midtier and high-end retailers also was linked to consumers’ “fatigue of not spending,” said Mityas.

“Consumers have a short memory,” he said, explaining the “frugality of the American consumer” was “just a bump” last year. “It has become fashionable to spend again.”

Taking into consideration challenging macroeconomic factors such as unemployment and a tough real estate market, it may be too early to celebrate, warned John Long, a retail strategist at consulting firm Kurt Salmon Associates.

Long, who called March results “anticlimactic,” said April would give analysts a better picture of consumer confidence and whether these positive spending patterns were “sustainable.”

“Comps should do quite well for the first half of 2010” because they were “so bad” last year, he said, but in the back half of the year, “retailers will have a little more of a hurdle to clear.”

Citi broadlines analyst Deb Weinswig acknowledged upcoming challenges, but maintained that “underlying same-store sales trends” at retailers that she covers are “strengthening.”

“We believe promotions and inventories remain well controlled, and expect profits to be strong in the first quarter,” she said, noting improvement in ticket trends, women’s fashion, home-related categories, easy comparisons and moderating food deflation for discounters and clubs.

“The consumer is coming back and responding to the value that we are presenting them,” Macy’s Inc. chairman, president and chief executive officer Terry Lundgren told WWD at the 2010 Global Retailing Conference at University of Arizona on Thursday after his firm reported a 10.8 percent increase for the month versus a 9.2 percent decline a year earlier.

Macy’s said customers were “responding favorably” to its spring fashion offerings, which included assortments better tailored to local tastes because of the My Macy’s program.

Falling short of Kohl’s lofty gain, midtier rival J.C. Penney Co. Inc. managed a 5.4 percent uptick with strength in “all apparel categories.”

The strength of better merchandise in March didn’t translate into weakness in the value channel, either. Target Corp. raked in a 10.3 percent increase in same-store sales last month, coming against a 6.3 percent decline in the prior-year month. Gregg Steinhafel, chairman, president and ceo of Target, noted that the increase was “driven by particular strength in our apparel business.”

The nation’s two largest off-price retailers, The TJX Cos. Inc. and Ross Stores Inc., continued their strong sales trends, with comps rising 12 and 14 percent, respectively.

“Off-pricers are maintaining their sales, but they are not seeing sales acceleration,” said Citi retail analyst Kimberly Greenberger. She dismissed the idea that consumers were trading up after months of rummaging through bargain bins, saying they were simply “starting to spend a little more aggressively.”

Consequently, she called Abercrombie & Fitch Co.’s 5 percent comp increase “highly disappointing,” as it was up against a 34 percent comp decline, the largest of all stores tracked, in March 2009. The analyst pointed to ANF’s Hollister chain, which turned in a 1 percent decrease.

“I don’t even know how you do that,” she said. “Hollister’s product is very underwhelming. They are still struggling.”

The best comps in the specialty segment came from Cato Corp., which posted a 24 percent jump, followed by a 19 percent increase at both the Victoria’s Secret unit of Limited Brands Inc. and teen retailer Aéropostale Inc. (Limited was up 15 percent overall.) Greenberger said Aéropostale might be lagging with the emerging skirt trend, upon which American Eagle Outfitters, up 15 percent for the month, has capitalized.

Lazard Capital Markets analyst Todd Slater, who rates AEO a “buy,” said there is a “disconnect” between Wall Street and the company.

“AEO is not generating a margin-less recovery,” he said, “[Earnings before interest and tax] margin is likely to be up more than 400 basis points, with more of a contribution from gross margin than from [selling, general and administrative expenses] leverage.”

Elsewhere in specialty retailing, Gap Inc. logged an 11 percent corporate increase as Gap’s U.S. stores were up 11 percent; Old Navy, up 13 percent, and Banana Republic, up 10 percent.

Destination Maternity Corp. and Hot Topic Inc., along with Rite Aid Corp., recorded the day’s only negative results with declines of 3.3, 7.5 and 0.1 percent, respectively.

Although Hot Topic’s 7.5 percent drop was the weakest result reported, the company still beat expectations of an 11.1 percent slide, said FBR Capital Markets analyst Adrienne Tennant. The firm hasn’t been able to match year-ago strength because of its involvement with “Twilight” and a strong women’s bottoms business, but she expects comparisons to ease beginning in the second quarter.

While the beating of strong expectations in March was unquestionably good news for retailers, exceeding April’s far more modest projections would deliver a stronger message about consumer confidence, especially in light of lingering high unemployment and the uncertainty of other macroeconomic factors.

A.T. Kearney’s Mityas feels that most retailers will need until the fourth quarter, with its more challenging comparisons, to get a true sense of the outlook for retailing.

“Retailers haven’t popped the Champagne corks yet,” he said, “but they clearly have the bottles on ice.”

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