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Retailers: Mixed Feb. sale results

March 6, 2008 6:28:48 PM PST
Consumers gave the nation's stores some relief in February, spending a little more freely although they mostly gravitated toward discounters and grocers. The challenge for merchants in coming months is to get shoppers to splurge on spring fashions - a tough task when Americans are worried about plunging home values, tighter credit and rising gas prices. As retailers reported mixed February sales results Thursday, it was clear that shoppers bought the basics, helping low-price operators like Wal-Mart Stores Inc. and Costco Wholesale Corp. exceed Wall Street expectations after a dismal January and disappointing holiday season. But customers largely shunned mall-based apparel stores, hurting merchants like Gap Inc., Limited Brands Inc. and J.C. Penney Co.

"On the whole, it looks more positive than I would have expected," said Russell Jones, director of AlixPartners, a consulting company. "But people are definitely focusing on the core things they need to buy. They may be buying some apparel, but they are no longer buying that extra item that pops their eye."

He added, "You are really seeing a trading down."

That's a problem for mall-based stores as they hope to entice consumers with spring fashions in such bright hues as coral and yellow, a big departure from a year ago, when stores were awash with such neutral colors as beige.

"I think it is going to be a challenge, even for those that have great offerings," said Chris Donnelly, a partner in the retail practice at consulting group Accenture.

The UBS-International Council of Shopping Centers preliminary sales tally of 39 retailers rose 1.9 percent in February, exceeding the estimated growth range of 0.5 percent to 1 percent. The results, while still sluggish, were helped by Wal-Mart's solid increase and were much better than the previous month's 0.5 percent gain,the industry's weakest January performance in nearly four decades. The tally is based on same-store sales or sales at stores opened at least a year, a measure that's considered a key barometer of a retailer's health.

Ken Perkins, president of RetailMetrics LLC, a research company in Swampscott, Mass., reasoned that consumer spending levels had been so low there "may have been some pentup demand" last month. He believes the expectation of tax rebates could have also helped shoppers get in the mood to spend.

Still, February - a month when stores start bringing in the bulk of spring receipts - is one of the least important periods in a retailer's sales calendar. And so analysts are monitoring the critical March and April period. An early Easter, which falls on March 23, historically doesn't help spark sales of warm weather clothes. More importantly, shoppers continue to be squeezed by higher gas and food costs and are struggling with a housing slump and credit crisis that show no signs of abating. And Thursday, the Mortgage Bankers Association announced that home foreclosures rose to an all-time high in the final quarter of last year.

Such economic woes are souring consumer confidence, which plunged in February, according to the Conference Board.

Meanwhile, the job market, which had helped boost spending in recent years, has shown signs of slowing. The Labor Department reported Thursday that the number of people signing up for unemployment benefits fell sharply last week, but the news failed to change the overall picture of a weaker employment market. New applications filed for unemployment insurance fell by a seasonally adjusted 24,000 to 351,000 for the week ending March 1. A year ago, new filings for unemployment benefits stood at 327,000. Economists are now awaiting government payroll data for February that's to be released Friday.

Discounters like Wal-Mart have benefited from consumers turning to lower-price shopping options. The company reported a 2.6 percent gain in same-store sales. Analysts surveyed by Thomson Financial expected a 1.1 percent gain. The company said electronics, groceries and health items helped boost sales. It said apparel sales improved, but its home goods business remains weak.

Discount rival Target Corp. said same-store sales rose 0.5 percent, ahead of analyst expectations of a 0.2 percent decline. The strongest-selling merchandise included healthcare products, food and shoes. Home furnishings, men's apparel and accessories were weaker.

Wholesale operator Costco Warehouse Corp. reported on Wednesday a 6 percent increase in same-store sales, beating the 7 percent estimate.

But the industry is grappling with an apparel spending malaise that has deepened in recent months as shoppers cut back on discretionary items. When they do spend, they are buying at lower-price options. Among the bright spots were off-price retailer TJX Cos., which operates T.J. Maxx, Marshalls and HomeGoods. The chain reported a 3 percent increase in same-store sales, in line with the 3.2 percent Wall Street estimate.

Teen retailer Aeropostale Inc. - which offers fashions at lower prices than teen stalwarts like Abercrombie & Fitch Co. - posted a 7 percent same-store sales gain. That was better than the 4.6 percent estimate.

But many department stores, including upscale stores, and mall-based apparel stores struggled. J.C. Penney Co. said same-store sales in its department store business fell 6.7 percent, missing the 2.2 percent estimate. The company is hoping to boost sales with American Living, an exclusive collection with Polo Ralph Lauren. Penney said the merchandise has enjoyed "a good initial customer response."

Meanwhile, Limited Brands suffered a 9 percent decline in same-store sales, though results exceeded the 11 percent forecast. Gap's same-store sales fell 6 percent, worse than the 2.8 percent analysts expected.

Teen retailer Abercrombie & Fitch had a 2 percent sales decline; analysts expected sales to be unchanged. Rival American Eagle's same-store sales drop of 4 percent exceeded the 2.3 percent forecast.


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