NEW YORK — Color retail happy, for now.
On Thursday, retailers are expected to report solid year-over-year same-store sales growth for March — driven by early spring weather, fashion newness and a more upbeat consumer.
“Spring is here and March was a month focused on full-priced selling,” said Deborah Weinswig, a broadlines retail analyst with Smith Barney, in her research note this week. “The fashion newness featured in spring 2004 offerings is likely enticing consumers to freshen up their wardrobes.”
According to the Smith Barney Broadlines Index, comps are expected to show an increase of 4.9 percent, which compares with a decrease of 0.1 percent in the same month last year, but short of the 7 percent gain in February.
Key trends for spring include bright colors, especially pink and yellows, “preppy looks,” status and luxury items, as well as anything with logos, analysts said. In addition, the reemergence of higher-ticket career wear should also help boost sales.
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Sales are also likely to benefit from a more confident consumer. According to the most recent Conference Board survey, consumer confidence is up significantly from last year when concerns about the war with Iraq negatively impacted spending. Higher average tax refunds and lower withholding rates are also lifting consumer confidence.
Weinswig said she expects discounters and department stores to continue to enjoy strong sales momentum, given the easier comparisons and tax refunds. Specifically, she said department stores are likely to be a mixed bag with retailers offering trend-right merchandise and newness being the winners. Those retailers with undifferentiated merchandise should continue to post sluggish results.
Moreover, analysts said much of the sales momentum in March was driven by full-priced selling. In turn, analysts expect a slew of retailers to raise their quarterly earnings guidance.
“Through a combination of low inventory levels, a fashion cycle focused on color, strong denim demand and cooperative weather, we are beginning to witness earnings coming in ahead — sometimes significantly so — of current expectations,” said Jeffrey Klinefelter, a retail analyst with Piper Jaffray, in his research note this week.
In the specialty segment, Lauren Levitan, an analyst with SG Cowen, said she expects “March to prove to be yet another strong month for the group, benefiting from strong spring demand versus war concerns last year and favorable weather trends.” For the teen specialty retailers, Levitan said she expects the earlier spring break will also lift sales.
Brian Tunick, equity analyst at J.P. Morgan, echoed Levitan while also pointing out another critical trend: pent-up demand. “Compared to last year’s just dismal March comps, we believe warmer weather, improved spring color trends and what appears to be some pent-up apparel demand should result in very strong March comps,” he said in his research note.
Beyond March’s results, however, retailers will be facing more difficult comparisons. So the key question is how long investors will stay embedded in the sector.
“Looking at the upcoming comparisons, we wonder whether these will be the best comps that we see all year, and if investors begin to reduce some of their retail exposure,” Tunick said. “We are still waiting to see what the tone of consumer spending will look like in the back half of 2004 as retailers will face much more difficult comparisons compared with [the first half].”