February Retail Sales Stronger than Expected

 

The International Council of Shopping Centers, which tracks 28 major retail chains excluding Wal-Mart, said the industry was “firing on all cylinders” during February, as particular strength from the high-end and low-end outlets bourgeoned consolidated same-store sales to year-over-year growth of 4.2% – better than the 3.8% growth originally forecasted by the ICSC.

 

Economists attributed the stronger-than-expected market growth to improving customer sentiment that was spurred by the aforementioned assorted “stimulus funds” as well as pent-up discretionary demand generated from a blustery January that kept many shoppers at home.
The widespread improvement in February also came on the heels of improving labor markets, broader improving economic conditions and the reduction in the payroll tax, the ICSC reported. The ICSC and other organizations, however, warned that strong consumer demand and discretionary purchases are very likely to taper off significantly in the coming months as soaring fuel prices and increasing food costs take their toll on cash-strapped consumers.

As “vacation” weather sets in, speculation is mounting that growing fuel prices may force travelers to consolidate their spring and summer excursions, which is expected to significantly impact impulse purchases – especially for shoppers with lower incomes.  A recent Reuters report indicated that oil prices have settled at their highest level since August 2008 amidst political unrest in the Middle East. Higher food prices are also expected to cut into the consumer’s discretionary income as the spring months unfold. In a recent earnings report, David Dillon, CEO of Kroger supermarkets, said rising food prices – the grocer projected about 1% inflation – would cut significantly into discretionary spending, adding that food stamp use in Kroger stores was still at historical levels. Likewise, on the apparel side, rising cotton costs have prompted several retailers – including Macy’s, Kohl’s and J.C. Penney, among others – to announced pricing increases on clothing.

 

Bargain hunters and luxury shoppers provided the boost during February while many “mid-level” retailers – Dillard’s, Stage Stores, Gap – reported disappointing sales as shoppers clearly adhered to one of two extremes in the month.

For the Luxury chains, strong sales continued from January due to the return of a full-priced customer that is more resistant to volatile fuel prices. Saks (+15.3%), Nordstrom’s (+7.3%) and Neiman-Marcus (+12.7%) all turned in strong to very-strong results as luxury shoppers hit the aisles in search of new spring merchandise, apparel, shoes, jewelry and designer handbags. All three chains outperformed preliminary estimates for the month, solidifying the notion that the recession has widened the gap between wealthy shoppers and lower-income shoppers.

Among other Department Stores, reports weren’t as positive, as mid-tier retailers clearly suffered in the wake of a solid month for the high- and low-end sectors. At Stage Stores (-7.2%) winter storms in Oklahoma, Arkansas, Missouri and Texas kept customers away from stores, causing the chain to miss analysts’ projections badly. Despite the retailer’s misfortune, company President and CEO Andy Hall said management was “pleased with the way business performed in the second half of the month,” when comps were up approximately 10%. At Dillard’s (-1.0%), same-store sales were weaker-than-expected on slight sales weakness from the company’s Eastern region and soft sales of the home & furniture category and men’s category. Macy’s (+5.8%), on the other hand, outpaced estimates on solid returns from spring merchandise at Macy’s and Bloomingdales.

For the Discounters, comps were generally very solid, with the ever-reliable Stein-Mart (+8.2%) leading the way on strength from robust sales in the Southeast and Northeast along with strong showings from ladies’ career sportswear, men’s sportswear and the home category. At high-end discounter Target (+1.8%), the retailer missed forecasts but saw strength from fresh food and shoppers using Target’s branded cards, which offer a 5% discount. Weakness in the Midwest, the Carolinas and the Northeast along with disappointing sales of home products and electronics tempered results. At TJX Cos. (+3.0%), comps narrowly outpaced expectations as budget-conscious customers showed a propensity for off-price labels and houseware items. CEO Carol Meyrowitz said the retailer continues to see an increase in consumer traffic, “signaling to us that great value remains a top priority for consumers.”

At the mall, The Buckle (+2.1%) and Zumiez (+12.8%) maintained strength while Hot Topic (-1.4%) continued to flounder and Gap (-3.0%) missed forecasts badly. Management at Gap, Inc. said sales at the usually-stellar Banana Republic chain dipped 4% during the month while sales at Gap North America slipped 1% and sales at Old Navy NA dropped 4%.

For the Warehouse Clubs, Costco (+8.0%) followed up on near double-digit January growth on surging fuel prices, and BJ’s Wholesale (+5.5%), which is in the midst of sale talks, also pointed to gas prices as a key sales stimulator.

Looking ahead, the ICSC forecasts March comps to be flat-to-up-2% with the Easter holiday shift being a “big drag” on year-over-year sales growth. Early expectations for April indicate a sales gain of about 5%..
In related news, retail sales improved across all districts of the Federal Reserve Board, according to the latest Beige Book. The report also said retailers and manufacturers were encountering less resistance to passing along rising costs and there appeared to be little wage pressure due to the high unemployment rate. The report confirmed that retails sales improved everywhere except the Richmond and Atlanta districts “although Boston, New York, Philadelphia, Atlanta and Kansas City noted that severe snowstorms had a negative impact on merchant activity.”

Likewise, MasterCard Advisors SpendingPulse said February recorded continuing growth across most categories, maintaining the positive performance that began in Fall 2010. However, February's year-over-year growth rates were smaller in most categories than those recorded in the November 2010 through January 2011 period, according to the report. Once again, the big winner was e-Commerce, with strength in a wide range of other sectors and declines only in a few categories such as Department Stores and Electronics and Appliances. Michael McNamara, VP of Research and analysis fpr SpendingPulse, said momentum came from “ongoing strong performance by the financial markets and growing consumer confidence,” but noted that the effects of rising fuel process have not been fully felt.

Furthermore, the report indicated that total Apparel sales grew by 6% over February 2010, making for seven straight months of growth, although at the lowest rate of growth since September. Sales in all Apparel sub-sectors were positive, from a modest increase of 0.8% for Footwear to a 10.7% increase in Children's. The remaining subcategories grew year over year in the mid to upper single-digits.

E-Commerce posted its fourth consecutive month of double-digit growth, rising by 13.2%, slightly higher than January's 12%. Online Total Apparel grew by 13%, marking the 15th straight month of double-digit increase. There was double digit growth in every sub-category of apparel with the exception of women's clothing which still grew by 7.7% for the month.

 

Zumiez reported comparable store sales increased 12.8% for the four-week period ended Feb. 26 compared to a 11.2% increase in the year-ago period. Total sales increased 18.3% to $32.7 million for the month from $27.6 million in the year-ago period.

Comparable sales growth was driven by an increase in comparable store transactions partially offset by a decrease in dollars per transaction. ZUMZ said that dollars per transaction were down due to a decrease in units per transaction and a slight decrease in average unit retail.
Accessories, footwear, men’s juniors and hardgoods posted positive comps while boys posted negative comps.

Management said all regions comped positive between 8% to 10%, while sales growth generated through our website was higher. CFO Trevor Lang said ZUMZ will stop reporting regional comps because the company does not believe the variances meaningful.

 

 

The Buckle reported that February comparable store sales increased 2.1% while total net sales increased 6.4% to $73.9 million compared to $69.4 million a year ago.

On the men's side of the business, which represented approximately 40.5% of total sales for the month, sales were up about 9.5% and overall price points were up approximately 1.0% for the period. Strong categories on the men's side included denim, woven shirts, active apparel and accessories.

Women's sales, which represented about 59.5% of total sales, were up approximately 4.5% versus the prior-year period.  Overall price points on the women's side of the business were down approximately 4.0%.  Strong categories in women's included knit tops, active apparel, accessories and footwear.

Accessory sales increased 29% for the month, while footwear sales increased 12.5% for the period.