Retailers Report Strong March Sales As Consumers Spend Again

Retailers Thursday reported strong year-over-year gains in sales at stores opened more than a year as indications continue to grow that consumers are spending again.

In addition to improved consumer confidence, retailers also benefited from easy year-ago comparisons, increased Easter shopping and warmer weather.

"Retailers are smashing expectations," Thomson Reuters analyst Jharonne Martis said.

With just under half having reported, all but one have beat Wall Street projections, with Costco Wholesale Corp. (COST), Limited Inc. (LTD), Hot Topic (HOTT) and Cato Corp. (CATO) reporting better-than-expected results.

The only disappointment so far is apparel retailer Abercrombie & Fitch Co. (ANF), which posted a 5% increase in same-store sales when Wall Street expected 6.6% growth. Abercrombie shares slipped 3.2% premarket to $46.

Same-store sales, a key retail metric, count only sales at stores open at least a year. Wal-Mart Stores Inc. (WMT) doesn't disclose monthly sales figures.

The strong sales growth--in a month in which many retailers unveil spring merchandise at full price--suggests consumers are feeling more confident about paying a higher price, a potential boost to retailers' first-quarter margins.

"Consumers have been in a restrained spending mode for several months, but improved consumer confidence is prompting shoppers to loosen the purse strings after two years," Martis has said.

All of which could lead to a strong beginning to 2010 for retailers.

"Underlying sales trends look strong, and we believe retailers are setting up for a very good first quarter," said Daniel Binder, retail analyst at Jefferies.

Teen apparel, always a good indicator of discretionary spending, showed particular strength in March as Zumiez Inc. (ZUMZ) and Hot Topic reported better-than-expected results.

Ironically, Hot Topic so far has reported the worst same-store sales result, down 7.5%, but its shares are rising the most, up 18% premarket to $8.32, because the decline was narrower than the expected 11.2% drop and the company announced a special one-time cash dividend of $1.

Women's apparel and accessories retailer Cato raised first-quarter earnings guidance, the first in what may be a number of retailers to do so as more reports come in.

Retailers were setting up for something big, with several indicators suggesting improvement after the industry struggled last year under the weight of the economic downturn.

The retail industry added 14,900 jobs in March, its third straight month of expansion after shedding over one million positions since the recession began in December 2007.

Import cargo volume at the nation's major retail container ports is expected to rise 8% in April compared with a year ago, and solid increases are expected to continue through the summer as the US economy improves, the National Retail Federation said.

"Retail sales are starting to improve, and retailers are importing merchandise in the quantities they need to meet that demand," said NRF spokesman Jonathan Gold.

Even the highest end is seeing encouraging signs. Predictions "of the demise of luxury and full priced spending were exaggerated," Tiffany & Co (TIF) Chief Executive Michael Kowalski said when the company posted improved fourth-quarter results in late March. "Many customers were simply waiting for some improvements in their personal incomes and balance sheets prior to resuming spending."

It is not likely to be a completely smooth path for retailers because consumers are still watchful of their wallets. The latest indication came Wednesday with word that Americans put their credit cards back into the drawer in February, an indication they aren't ready to spend briskly despite the economy's improvement. Consumer credit fell $11.5 billion in February, the Federal Reserve said.

Retail stocks have been ahead of the industry's improved sales figures, with many shares trading at multi-year highs coming into this week after the group bottomed in March 2009. Big advances from here may be more hard fought because of the extended run-up and the stocks now pricing in improving conditions, analysts say.

-By Karen Talley, Dow Jones Newswires; 212-416-2196; karen.talley@dowjones.com

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