March Retail Stronger Than Expected

Wall Street Journal
By Karen Talley



Retailers delivered solid March sales numbers, despite the challenges posed by a later Easter, poor weather and higher gasoline prices.

The majority of retail chains reported decent gains for the month at stores open a year or more, including Costco Wholesale Corp., Macy's Inc. and Limited Brands Inc.

Others, including Target Corp., J.C. Penney Co. and Kohl's Corp. posted declines in same-store sales from a year earlier, but the dropss were less than analysts projected.

Upper-end shoppers continued to show particular strength, with Saks Inc. and Nordstrom Inc. delivering strong results.

"I was worried about the fragile progress we have seen so far on the part of retailers, which is really a reflection of consumers," said Barbara Kahn, director of the Jay Baker Retailing Center at the University of Pennsylvania's Wharton School. "But March, even though a complicated month, does suggest more progress on the road to recovery."

The month saw tax returns coming in, which gave consumers some extra discretionary income. The government also reported strong growth in employment, with non-farm payrolls showing the addition of 216,000 positions, spurring hopes for a sustained jobs recovery. Higher-end consumers especially were feeling good as the stock market continued marking gains.

Retailers are facing increasing cost pressures from rising cotton and labor prices and will have to see what kind of price increases shoppers will absorb.

The 25 retailers tracked by Thomson Reuters reported a 1.7% rise in same-store sales for last month, when a 0.7% decline was expected. The strong showing followed considerable reservations about consumer demand because of Easter being its latest since 1943, landing on April 24. The shift to April 24 from April 4 last year was seen as pushing a lot of spring buying into April. Easter is the third largest selling season behind the Christmas season and Valentines Day, according to the National Retail Federation.

Macy's bumped its combined April and March sales expectations to a 4% to 4.5% rise from a previous expectation for a 3% rise for the two-month period after reporting same-store sales for last month March alone rose 0.9%. Analysts had been expecting a 2% drop.

Victoria's Secret operator Limited Brands was another of the month's standouts, posting a 14% rise in comparable-store sales, well ahead of expectations for a 1.5% advance.

Gap Inc. lowered guidance because of events in Japan, where it operates over 150 stores. The retailer said last month's earthquakes and tsunami will cut earnings per share for the current quarter by about four cents a share. Gap was among the few retailers to serve up a disappointment in March same-store sales, showing a 10% drop when 7% decline was expected. Gap, which also owns the Banana Republic and Old Navy chains, has been having a rough time with its U.S. operations, too.

"I wouldn't necessarily say the performances we saw for March were remarkable, because expectations were so low," said John Long, retail strategist at Kurt Salmon. "It will take April and the Easter holiday to really gauge what's going on, especially on the apparel side."

Susan McGalla, chief executive of young women's retailer Wet Seal Inc., echoed a number of retailers by saying April sales will benefit as a result of the calendar shift for Easter. Wet Seal reported a 4.7% gain in same-store sales compared with expectations for a 1.7% drop and Ms. McGalla said the company would likely have seen a high single-digit percentage increase without the effect.

Consumers are expected to be out in force heading toward Easter. U.S. retail spending on Easter related merchandise, for everything from cookware to clothing, is expected to average $131.04 a person this year, up 11% from a year ago, the National Retail Federation said, based on a consumer poll. The increase suggests momentum and is "a good sign leading into the much busier and important months to come," said Matthew Shay, the trade group's president.