Most Retailers' 1Q Results Expected To Show Sales Returning

Most major retailers are likely to report solid sales when they post first-quarter results in the next few weeks, reflecting the industry's transition from cost-cutting during the recession to building up the top line to drive earnings.

Wal-Mart Stores Inc. (WMT) is expected to be among the exceptions, with softness in the U.S. dragging on results.

"First-quarter earnings season should be encouraging," said Bill Dreher, a retail analyst at Deutsche Bank. "Sales momentum has been stronger than expected."

Retailers have been building momentum as consumers become more comfortable about spending. First-quarter figures are expected to reflect a tentativeness, though, as full-force buying has yet to return and retailers are still offering products with some promotions. Thomson Reuters is projecting a 2% on-year rise for quarterly same-store sales at the 88 retailers it tracks.

The goal for retailers is for sales to outpace, or at least keep up with, inventory growth. After more than a year of aggressively cutting back on merchandise, retailers are trying to find the best balance under conditions that are still not fully stable.

The first quarter will help set the tone for the rest of the year, and some retailers are seen reinforcing their budding optimism by raising their projections for the full year.

Macy's Inc. (M) gets the ball rolling Wednesday when the mid-priced retailer reports its first-quarter figures. Sales at stores open more than a year, a key gauge of demand, are expected to rise 4.6%, according to analysts' surveyed by Thomson Reuters. Macy's has beaten analysts' same-store sales projections each month so far this year.

Macy's is in the midst of efforts to tailor product offerings more closely to local tastes. In a meeting with analysts two weeks ago, Chief Executive Terry Lundgren said the efforts were panning out, with stores faring well and fresh inventory attracting customers.

Just about every other department store Thomson Reuters tracks is expected to report year-over-year gains in comparable-store sales, with Kohl's Corp. (KSS) a stand-out at 5.7%.

Upper-end retailers Nordstrom Inc. (JWN) and Saks Inc. (SKS) are pegged to post positive sales growth, benefiting from easier comparisons with a year ago amid some return of affluent shoppers. Tiffany Inc. (TIF) is projected to show same-store sales growth of 9.5%.

It is encouraging to see "the slight comeback of the high-end consumer," since the top 20% of U.S. income earners account for about 40% of consumer spending and an even greater percentage of discretionary spending, said Deborah Weinswig, a retail analyst at Citigroup.

Wal-Mart, on the other hand, is projected to report a 0.4% decline in same-store sales when the world's biggest retailer reports results on May 18. Wal-Mart is in the midst of an international expansion and efforts to take its next steps in the U.S., including considering smaller stores and making existing stores better organized and easier to shop at. Coming into next week's report, Wal-Mart has reported three straight quarters of softer sales in the U.S.

Wal-Mart is part of a discount and mass merchant group that includes Target Corp. (TGT), which is expected to show same-store sales growth of 3.5% as it benefits from getting back on track after seeing its sales particularly hard hit during the recession.

Sears Holdings Corp. (SHLD), another mass merchant, is seen posting a 1.2% drop in first-quarter same-store sales, which could temper earnings.

Apparel retailers including Gap Inc. (GPS) and TJX Cos. (TJX) are looking at sales that are stronger than last year, Thomson Reuters said.

While conditions appear to be improving, consumers are still acting somewhat constrained and that will keep a full-fledged recovery out of reach for at least the time being. Recent earnings reports from Visa Inc. (V) and MasterCard Inc. (MA) continued to highlight a shift toward debit cards away from credit cards as consumers show a reluctance to extend themselves.

"I am encouraged by improving big-ticket consumer purchases, but as long as credit remains weak, further improvement could be limited," said David Strasser, a retail analyst at Janney Montgomery Scott.

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

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