Lean Inventories, Revived Consumer Offset Winter Weather to Drive February Retail Growth

 

February marked the third consecutive month of increased comps and the best retail results since pre-recession days in late 2007. Despite colder-than-usual temperatures and relentless snowstorms in the Northeast region, retailers said the market benefited from a less promotional environment as consumers demonstrated they are once again willing to pay full or close-to-full price for clothing and goods.

 

Likewise, consumers are starting to show a renewed propensity for high-end items, as evidenced by a resurgence from Gaps Banana Republic brand and comps growth from high-end department stores like Nordstrom and Saks. Analysts, however, warned that February results were inflated from easier year-ago comparisons, when frugal consumers scoured the racks for deep discounts and discontinued styles.

 

Experts agree that March and April will be much more telling indicators for the 2010 outlook as shoppers hit the malls to update their spring wardrobes. After all, February, which is traditionally one of the two least-important months from a sales volume perspective, is also regarded as a transition period when retailers clear out winter inventory to make room for incoming spring orders.

 

According to the International Council of Shopping Centers, which tracks 31 retail chain stores, excluding Wal-Mart, weather dropped Februarys same-store sales by about one percentage point, but the ICSC pointed out that even in the most weather-sensitive segments, shoppers continued to brave snowstorms and cold weather.            

Apparel specialty stores posted solid 6.8% growth, the strongest since March 2007, and Macys reported comp growth of 3.7%. CEO Terry Lundgren estimated same-store sales would have improved 5% without the snow.

 

Other strong players within the rebounding department store Luxury sub-segment were Saks (+2%), which expanded exclusive merchandise offerings and emphasized its discount Off 5th business, and Nordstroms (+10.3%), which has seen recent strength supplemented by introducing moderately-priced opening price-point products. At Neiman Marcus (+6.2%), growth was driven by Neiman Marcus Direct, which reported notable strength from womens apparel, jewelry, childrens and mens. Representatives added that from a retail standpoint, growth trends were strongest in the West, Southeast and New York City regions.

 

Kohls (+3.7%) continued to outpace estimates, while J.C. Penney (+1.2%), heftily beat analysts estimates on strength from spring merchandise and childrens apparel and healthy sales in the Southeast region. On average, analysts had predicted a 1.3% decline for Penneys.

 

For teen retailers, the group jumped about 5% on a consolidated basis, as the segment continued its resurgence from a brutal 2009 on surprising growth from Abercrombie & Fitch (+5%) – much better than the 6.9% decline expected by analysts. In January, ANF, which traditionally has been resistant to cutting price points, ended a string of declining months that stretched back to April of 2008. ANFs much-maligned Hollister brand reported small-but-significant comp growth of 1% for the month.

 

American Eagle (+6.0%) outperformed analysts predictions of 2% growth, but the retailer maintained its Q4 adjusted outlook of earnings per share in the range of 32 cents and 33 cents.

 

Despite weakness in the Northeast region that stemmed from inclement weather, Gap (+3.0%) rode strength from its Banana Republic (+6.0%) and Old Navy (+5.0%) brands to beat estimates.

 

Things werent so rosy at Hot Topic, which saw comps decline 7.0% on softness from the companys namesake brand.

 

Discounters reported better-than-expected results, as well, as shoppers continue to look for bargains when buying spring apparel. The TJX Cos. (+10.0%) maintained strength, while high-end discounter Target (+2.4%) beat estimates on strong sales from merchandise and household essentials. Ross Stores (+11.0%) also beat estimates, but company Vice Chairman and CEO Michael Balmuth neglected to up earnings forecasts due to uncertainty regarding Easter in early April 2010.

 

For the steady-performing warehouse clubs, BJs Wholesale (+7.5%) and Costco (+9.0%) continued growth on strength from gasoline prices and foreign currency rates.

 

Looking ahead, analysts agree that March and April will be key to determining the state of the retail market for 2010 as retailers move out winter inventory and place more emphasis on incoming full-priced spring selections. For March, the ISCS anticipates same-store sales will increase by about 2.5% as those easy year-ago comparisons continue and so too does the consumer recovery.

 

In related news, a report issued by the Labor Dept. late last week indicated that fewer jobs were cut in February than originally expected. According to the report, employers cut 36,000 jobs last month, better than the 50,000 cuts forecasted by economist. The unemployment rate held steady at 9.7% nationwide.

 

The combination of the strong retail month and the better-than-expected jobs figures sent industry stocks soaring last week.

 

The Buckle reported February comps improved 5.1% on net sales that increased 9.7% to $69.4 million for the four-week fiscal month from $63.3 million in the year-ago month.

Mens sales, which represented 39.5% of total sales, were up about 2.5% on strength from denim, woven shirts, outerwear and footwear.  Womens sales were up approximately 13.5% on strength from denim, woven tops, sweaters, accessories and footwear.  Overall price points were up approximately 6% for the month.

Zumiez Inc. reported comps for the four-week period ended February 28, increased 11.2% on net sales that increased 19.6% to approximately $27.6 million from $23.1 million a year ago.

Weekly comps were positive 11.9%, positive 8.9%, positive 12.3% and positive 11.8% for weeks one through four, respectively. On a pre-recorded call, company CFO Trevor Lang said dollars per transaction were down slightly due to a decrease in average unit retail, which was mostly  offset by an increase in units per transaction.