Retailers Showing That February Saw Sales Strength Continue

Shoppers had spring in their step during February, with retail sales for the month showing solid spending.

Fuller-priced warmer weather wear and the remnants of winter clearance merchandise both moved well, according to early indications. February is the first month of the first quarter for most retailers and the period's smallest in terms of sales. But the month is significant because it gives retailers a bead on just what kind of demand--and price acceptance--there is for their new spring and summer merchandise.

Teen retailer Zumiez Inc. (ZUMZ) continued the very strong performance it has been seeing in recent months. Just as important, the company saw gains in customer traffic, growth in just about all categories and its smallest average price decrease "in quite some time," said Jennifer Black, president of Jennifer Black & Associates. Fellow teen retailer Hot Topic Inc. (HOTT), which has been struggling, had a promising month, posting a smaller-than-expected drop in same-store sales.

Limited Brands Inc. (LTD) turned in another string of strong performances, as its Victoria's Secret stores carried the ball with a 15% jump in same-store sales, benefiting from Valentine's Day, while the company's Bed Bath & Body Works stores saw a 10% drop. Collectively, Limited's various units posted a 12% rise when 8.5% growth was expected.

Roughly a dozen retailers have been heard from out of the 25 that still issue same-store sales. The entire group is expected to show that comparable-store sales rose 3.6%, according to analysts polled by Thomson Reuters. The size of the anticipated growth indicates true demand, and not just bargain hunting, said Jharonne Martis, retail analyst at Thomson Reuters. For one thing, the 3.6% is on top of a strong 4% growth a year ago, making this the toughest comparison for retailers in five years.

The group of retail reporters is winnowed this month by three since as of January Abercrombie & Fitch Co. (ANF), Aeropostale Inc. (ARO) and American Eagle Outfitters Inc. (AEO) stopped reporting monthly sales.

"Consumers are moving more toward purchasing items they want, in addition to those they need," said Jeff Edelman, director of retail services at consulting firm RSM McGladrey. "We're finally coming out of the storm, both literally and figuratively."

Stage Stores Inc. (SSI) said it was a weather victim, hurt by particularly severe conditions in the states--Texas, Oklahoma, Arkansas and Missouri--where half of its stores are. The regional department store reported a 7.2% drop in comparable-store sales when a 2.5% rise was expected. A 10% jump in the second half of the month was not enough to offset the earlier impacts, but did put things on the right course, Chief Executive Andy Hall said.

Hall was not alone. Many retailers said the second half of the month was woefully better than the first. Zumiez, for instance, said its same-store sales burst in the last week of the month, with same-store sales leaping 24% in the last week of February.

The end-of-month momentum, while a positive, does not mean retailers are hardly facing a smooth ride, however. Higher costs for cotton, other raw materials and gasoline are expected to eat into consumers' enthusiasm as the year progresses. Many retailers, when reporting fourth-quarter results last month, said they expect to pass at least some of the higher costs to shoppers but there is no guarantee they will accept the move. People are still dealing with high unemployment and weak housing prices, making it likely there could be some pushback, forcing retailers to absorb more of the costs than they expected and affecting their earnings and margins.

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

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