By and  on January 3, 2005

NEW YORK — Due to a better-than-expected holiday sales picture, the WWD Composite Stock Index got a jolt last week despite light trading in the markets, which slowed down the S&P 500.

The WWD index jumped 1.7 percent to 1170.75 at the end of the week, which outpaced the S&P 500’s 0.3 percent gain for the period.

Of the investors and fund managers who were in the office and trading last week, the focus was on fourth-quarter retail sales expectations as well as the impact of gift card sales. Forecasts from the major equity firms are calling for a gain of 2 to 4 percent for December, which is slightly higher than prior estimates of flat comps to a gain of 2 percent.

Wal-Mart is forecast to deliver a comps gain in December of 1 to 3 percent. Deborah Weinswig, analyst with Citigroup Smith Barney, said in her weekly report that this is in range with her estimates. Weinswig, like others, expects about 30 percent of gift cards sold “will be redeemed in week five, and that could add 50 basis points to [Wal-Mart’s] comps this month.”

For the week, shares of Wal-Mart finished with a week-over-week gain of 1 percent to $53.06.

Target Corp., meanwhile, wrapped up the week with a gain of 3.2 percent, closing at $52.10. The retailer is pegged with a same-store sales estimate of a 3 to 5 percent gain.

“While inventories were on the lighter side this holiday season,” Weinswig wrote, “we believe that full-price selling benefited gross margins [at Target].”

Weinswig went on to say that “even though comps [at Target] might be on the lower side of plan, strong operating margins should keep earnings on track.”

The analyst’s take on the “lower sales, but better margins” theory has some weight as retailers have shifted their focus from just driving top-line growth. Financial strategies now center on delivering incremental top-line growth coupled with vehicles to bolster margins, such as improving operations and implementing markdown management software.

Regarding everyone’s favorite debate over the impact of gift card sales in December versus the clearance-bonanza month of January, the jury is still out.At least one Wall Street analyst said don’t blame gift card sales for what looks like somewhat disappointing retail revenues in December. Meanwhile several other Wall Street analysts think gift card sales likely drained December’s retail sales.

Emme Kozloff, of Sanford Bernstein & Co., shunned speculation that total results in December were considerably hurt, saying “recent media hype” about gift cards is a “red herring.”

While admitting that intra-month sales in December are likely negatively impacted by gift card sales, Kozloff wrote in a Friday research report: “Given a large percentage of gift cards are typically redeemed during the last week of December, the majority of the impact on an increased number of gift cards is to shift December sales from pre-Christmas to post-Christmas, not significantly impacting the overall monthly results.”

Citing industry estimates of an increase in gift card redemptions to 11 percent during the 2004 holiday, from 10 percent in the prior year, Kozloff said that year-over-year increase “is simply not large enough to cause a significant shift of sales from December to January.”

According to Kozloff’s research, from 2001 to 2003, for example, the shift of sales from December to January was just 40 to 65 basis points, she said, noting that gift cards patterns could have been only one reason for the move.

Further, in an analysis of gift card redemptions performed during the 2003 holiday period, Kozloff found that “only in an extreme case of no gift card redemption in December did gift cards negatively impact December sales growth by 100 basis points.”

As a result, Kozloff concluded in Friday’s report that, “December sales should be viewed as indicative of the health of the holiday season and the economic backdrop for retailers; a shortfall should not be excused by the growth in gift card sales (presumed to be redeemed in January).”

Retailers report same-store sales this Thursday.

On the supplier side of  business, True Religion Apparel Inc. and its subsidiary, Guru Denim Inc., said last week that it inked an accounts receivable financing deal with Merchant Factors Corp.

“Under the agreement, Merchant Factors Corp. will credit approve, purchase and collect all eligible Guru Denim invoiced receivables,” the company said in a statement.The deal will also allow cash advances to True Religion (and Guru Denim) “equal to 85 percent of the amount of all approved sales invoices submitted.”

True Religion Apparel Inc. makes, markets and sells True Religion Brand Jeans, which are found at retailers such as Neiman Marcus, Saks Fifth Avenue, Ron Herman, Henri Bendel, Bloomingdale’s, Nordstrom and Barneys New York as well as numerous boutiques.

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