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March sales were so bad they made Wall Street happy.

So many retailers posted comparable-store declines and the weakness was so broad-based that investors appeared to buy retail stocks on the theory that tighter inventories, tax rebate checks and upcoming easier comparisons could make the next few months look stronger.

The S&P Retail Index shot up 1.8 percent to 395.39 Thursday, as the broader S&P 500 rose a milder 0.45 percent to 1,360.55.

Wal-Mart Stores Inc. won the retail derby, not only posting a 0.9 percent rise in comparable-store sales for the month at its namesake division, but upping its first-quarter earnings guidance to boot.

There was little good news elsewhere, besides the strong performance among warehouse clubs and drugstores.

Frigid temperatures and an early Easter made for tough comparisons with March 2007. The calendar shift could not be wholly to blame, though, as shoppers are also holding back in the face of mounting job losses, a looming recession and turmoil in the credit and financial markets.

Comps overall fell 0.5 percent last month, the worst March showing since 1995, according to the International Council of Shopping Centers.

“There’s just a general weakness in all categories and women’s is the worse,” said Deborah Weinswig, broadlines analyst at Citigroup Global Markets Inc. “It’s the first time I’ve heard a lot of the retailers use the R-word.”

Whether or not the economy has technically entered a recession is really a technicality for stores cutting back on inventories to avoid markdowns. But there might be a hint of a silver lining.

“This really is as bad as it gets for two quarters,” said Weinswig.

April will benefit from an extra selling day thanks to the Easter shift and hopefully warmer temperatures. In addition, in May the government will begin mailing out $600 tax rebate checks and although their potential impact is being debated, the rebates can’t hurt.

Dana Telsey, chief executive officer and chief research officer of Telsey Advisory Group, expects consumers will save 25 to 30 percent of their checks and spend the rest.

“Will they spend the rest fixing the deck or buying apparel? That’s the question,” she said.

This story first appeared in the April 11, 2008 issue of WWD. Subscribe Today.

As for retail stocks’ gravity-defying performance on Thursday, Telsey said there was a glimmer of hope from investors.

“Comparisons will be easier going forward,” she said. “Inventory levels are being cleaned and retail executives are taking a hard look at their expense structures. Also, investors are underweight in the consumer sector. At this point, given that this is the most difficult comparison, there’s hope that this is the worse we’ll see.”

That’s in the future, though, and March was a bitter enough pill for retailers that it could leave a sour taste for some time.

“The people who did poorly did much worse than many hoped or expected,” said Russell Jones, a director at restructuring and advisory firm AlixPartners. Jones said some companies were trying to hide bad performances overall by blaming the Easter shift.

“J.C. Penney, at least, admitted that Easter’s usually a stronger season for them,” said Jones. “The fact that we’re down in so many stores suggests things may be even a little worse than they appear.”

Lightning did strike for some, though.

Buckle Inc.’s laid-back fashions resonated with shoppers enough to push the store’s comps up 20.9 percent.

“Being right in fashion will trump all the economic problems, but it’s really hard to do,” said Jones. “The apparel retailers who are going for specific niches can outperform their peers, but it’s really hard to sustain.”

Those finding such niches were few and far between.

Of the 36 retailers tracked by WWD, 26 posted comp declines in March compared with just one decliner a year earlier. Many firms, including Macy’s Inc., have stopped reporting monthly sales.

“The first quarter is working out to be worse than expected,” said Monica Aggarwal, credit analyst at Fitch Ratings. “People are just not going out and spending. Apparel across the board is getting hurt. I don’t think that’s new, it’s just a question of how bad does it get. A lot of it is macro-economics.”

Wal-Mart’s success last month seemed to be based on its breadth and low-cost positioning.

Cold weather hurt the discounter’s overall apparel sales, but basic items such as T-shirts and licensed apparel were strong performers. The Bentonville, Ark.-based behemoth now expects quarterly earnings from continuing operations of 74 to 76 cents a share, instead of the 70 to 74 cents previously expected.

Other stores zeroing in on price did not fare as well.

Rival Target Corp.’s comps fell 4.4 percent and J.C. Penney Co. Inc., which already said Easter sales were lackluster and reduced first-quarter projections, posted a 12.3 percent comp-sales decline.

“I’m not optimistic [the economy] will improve anytime soon,” said Penney’s chairman and ceo Myron “Mike” Ullman 3rd on the sidelines of the World Retail Congress in Barcelona. “We haven’t seen the bottom.”

Ullman, who isn’t forecasting a pickup before next year, said the retailer would scale back store openings due to turbulence in financial markets.

“This is a considerably tough environment,” he said. “It’s not good for anyone. Consumers are concerned about their net worth.”

A number of other retailers followed J.C. Penney’s lead and revised bottom-line projections.

Kohl’s Corp. posted a 15.5 percent comps decline and warned first-quarter earnings would come in at 40 to 42 cents a diluted share, less than the 50 to 54 cents previously expected and the 64 cent profit a year ago.

American Eagle Outfitters Inc., Cache Inc. and Mothers Work Inc. also drew back on quarterly guidance.

Gap Inc. stood by its earnings projections for the full year, but said its overall comps fell 18 percent. The most severe drop came in the Old Navy division, with a 27 percent comps decline.

“We have put too much emphasis on fashion in our [Old Navy] women’s assortment,” said a company spokesman. “We need to better balance the fashion product with the seasonal basic and basic product that our customers expect from us.”

The impact of such missteps is only accentuated by the broader macroeconomic trends stalking consumers.

“You’ve got higher gas prices, and people reading and hearing about job cuts,” said Jennifer Black of Jennifer Black & Associates.

The economy lost 80,000 jobs in March, the third straight month of declines, and a gallon of regular gasoline averaged $3.36 Thursday, according to the American Automobile Association.

“This is all having a psychological impact on the consumer, especially the higher-end shopper,” said Black. “They all want to keep their money close by.”

Luxe stores seemed to be feeling some of that angst.

Nordstrom Inc.’s comps dropped 9.1 percent, while Saks Inc. was off 2.9 percent. However, Neiman Marcus Group Inc. managed a 0.4 percent gain.

Looking ahead, it is hard to tell what will happen. If falling consumer sentiment is any guide, retailers might still have a tough go of it this year.

According to TNS Retail Forward’s ShopperScape survey, 36 percent of all shoppers plan on spending less on apparel this year than last. A year ago, 26 percent of the shoppers surveyed were planning on cutting back.

March February January
2008 2007 2008 2008
% Change % Change % Change
Bon-Ton -5.3 -3.8 -7.2 -1.3
Dillard’s -10.0 6.0 -2.0 -12.0
Gottschalks -15.4 1.9 -9.5 -7.4
Kohl’s -15.5 16.8 -3.8 -8.3
Neiman Marcus 0.4 10.2 -7.3 3.3
Nordstrom -9.1 15.0 -5.8 -6.6
J.C. Penney -12.3 10.6 -6.7 -1.9
Saks Fifth Avenue -2.9 10.1 3.4 4.1
Stage Stores -10.3 12.4 -2.5 1.0
Average: -8.9 8.8 -4.6 -3.2
Abercrombie & Fitch -10.0 7.0 -2.0 0.0
AEropostale 2.5 15.9 7.0 4.7
American Eagle -12.0 20.0 -4.0 -7.0
Banana Republic -8.0 8.0 -5.0 5.0
Bath & Body Works -13.0 15.0 -10.0 -10.0
Buckle 20.9 10.7 24.3 19.1
CachE 0.0 0.0 4.0 7.0
Cato -9.0 7.0 3.0 -2.0
The Children’s Place -3.0 7.0 5.0 6.0
Chico’s FAS -20.7 5.2 -14.9 -22.1
Gap (U.S. stores) -14.0 4.0 -3.0 -4.0
Hot Topic -3.5 3.4 -2.3 -3.6
Mothers Work -6.0 3.6 4.8 -2.1
Old Navy -27.0 10.0 -8.0 -3.0
Pacific Sunwear -8.0 14.1 6.0 -7.4
Rite Aid 2.6 3.3 2.2 2.0
Victoria’s Secret -6.0 8.0 -10.0 -8.0
Walgreens 4.4 8.0 8.3 3.8
Wet Seal -10.8 10.9 -8.2 -5.7
Zumiez -3.0 17.0 -2.6 1.7
Average: -6.2 8.9 -0.3 -1.3
BJ’s Wholesale Club 6.0 5.5 5.9 7.8
Costco 7.0 5.0 7.0 7.0
Ross Stores -2.0 6.0 4.0 1.0
Stein Mart -17.1 8.0 -10.4 -2.5
Target -4.4 12.0 0.5 -1.1
TJX Cos. 0.0 6.0 3.0 3.0
Wal-Mart (discount stores) 0.9 3.4 2.5 0.2
Average: -1.4 6.6 1.8 2.2
Up 8 34 16 16
Flat 2 1 0 1
Down 26 1 20 19
Total 36 36 36 36
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