By Jessica Wohl
CHICAGO (Reuters) - U.S. retailers gave investors an early Christmas present, posting their first monthly sales increase in more than a year and suggesting that wounded consumers might begin to heal in time for the crucial holiday season.
Store chains that included Macy's Inc, Abercrombie & Fitch and Kohl's Corp surprised Wall Street on Thursday with better-than-expected September sales.
The Standard & Poor's Retail Index rose 1.6 percent, with shares of Macy's up 2.9 percent and Abercrombie rising 6 percent.
Based on 30 retailers, sales at stores open at least a year climbed 0.6 percent, compared with expectations for a 1.1 percent decline, according to Thomson Reuters data. Nearly 80 percent of the companies beat expectations.
The last time sales rose was in August 2008, when retailers notched a 0.2 percent gain. That was just before a financial collapse in September constricted credit worldwide and sent jobless rates climbing.
Retail experts cautioned that the sales results did not yet presage a consumer-driven recovery to the U.S. economy.
"You need to see sales coming through, margins holding and overall profit rising," said Michael Niemira, chief economist of the International Council of Shopping Centers. "That overall story needs to play out for retail recovery to be solid."
The ICSC said October same-store sales should be about flat with a year earlier, when retailers averaged a 4.1 percent drop, according to Thomson Reuters data.
One factor in the higher September sales was an easier comparison with previous results. Same-store sales fell 0.9 percent in September 2008, according to Thomson Reuters data.
"We only get better or stronger from here, given the weak comparisons with a year ago," Niemira said.
This year's later Labor Day holiday pushed a good chunk of sales from August into September, but analysts had wondered if rising unemployment would weigh more heavily on spending.
On Thursday, a Labor Department report showed new U.S. jobless claims hit a nine-month low, suggesting the employment market was healing despite a September setback.
BACK-TO-SCHOOL, LATE LABOR DAY HELP SALES
Sales of clothing for the back-to-school season fueled many retailers' performances, especially in the early part of the month.
Several chains raised their profit forecasts for the current quarter, although Target Corp said it still had a cautious view of its fiscal fourth quarter, which includes the holiday season.
Holiday spending could be further constrained by shoppers' aversion to debt. Total U.S. consumer credit posted a deeper-than-expected drop in August, suggesting a tendency to cut debt rather than spend.
Many retailers continued to post declines in sales at stores open at least a year, but the drops were more moderate than analysts had forecast.
"I think the consumer is dipping their toe back into the discretionary waters right now, but just their toe," said Retail Metrics President Ken Perkins.
At Macy's, sales fell 2.3 percent, half as much as analysts anticipated. Upscale rival Nordstrom Inc's sales fell 2.4 percent, while analysts expected a 6 percent drop.
Teen apparel retailer Abercrombie saw same-store sales drop 18 percent, but that was better than the 21 percent decline predicted by analysts.
TJX Cos Inc, Kohl's, Limited Brands Inc and Children's Place were among the retailers that posted same-store sales increases.
COOLER TEMPERATURES HELP
Aeropostale Inc, American Eagle Outfitters Inc, Gymboree Corp and others raised their quarterly profit forecasts. Still, not all of the gains are coming from stronger sales. Gymboree's optimism stemmed mainly from inventory control and taking fewer markdowns.
Gap Inc's sales fell more than anticipated, but its shares edged up 0.3 percent after the company said margins came in significantly above last year.
TJX, whose message of value has made it one of the best performers in the downturn, saw even more shoppers visit its stores in September. Chief Executive Officer Carol Meyrowitz said seasonably cool temperatures in parts of the United States probably drove consumers to shop for fall merchandise.
One of the few retailers to miss expectations was luxury chain Saks Inc. It posted an 11.6 percent decline, with weakness persisting at its main Saks Fifth Avenue chain.
(Reporting by Jessica Wohl, Brad Dorfman and Ben Klayman in Chicago, Nicole Maestri in San Francisco, Aarthi Sivaraman in Seattle, Michele Gershberg in New York and Vidya Lakshmi in Bangalore; Editing by Lisa Von Ahn)
Another tentative sign of economic stabilization came on May 7 as retailers reported improved sales results for April compared with March. The sales gains were helped by this year's Easter shift into April as well as a slight improvement in consumer confidence, analysts said.
Sales at 35 outfits tracked by Retail Forward increased by 0.9% for the month, compared with a fall-off of 1.9% in March. However, the April figures are down from the 3.7% rise reported in April of last year. In 2008, Easter fell on Mar. 23.
"The retail sales declines are finding a bottom, but it's a bumpy bottom," Frank Badillo, senior economist at Retail Forward, said in a news release. "The Easter shift has caused some of the turbulence of the last two months. In the coming months there will probably be more bumpiness because of the effect of last year's economic stimulus and the uncertain impact of this year's stimulus."
The results that have come in so far show that discounters, such as Wal-Mart (WMT) and Target (TGT), and household essentials, including drugstores such as Walgreens (WAG), are growing modestly.
Wal-Mart reported a 5% same-store sales advance, much better than the 2.9% analysts surveyed by Thomson Reuters had expected. "We gained new customers, improved our market-share position, and found that when customers had more money to spend, they spent it more often at Wal-Mart," Vice-Chairman Eduardo Castro-Wright said in a statement.
Meanwhile, most discretionary stores selling apparel and accessories, such as Macy's (M), are still experiencing declines as they continue to reorganize their companies and adjust their inventories. Macy's saw a 9.1% drop in same-stores sales, worse than forecast, but boosted its first-quarter outlook. J.C. Penney's (JCP) 6.6% drop was a little worse than expected, but better than the company's guidance. It also upgraded its first-quarter profit outlook.
There is a sense of stabilization because stores are getting better at managing their inventories and responding quickly with discounts, and some stores, such as Gap (GPS) and American Eagle (AEO), were down but not as much as analysts expected: Gap slid 4%, vs. an 8% decrease predicted by analysts, and American Eagle was down 5%, vs. an anticipated 7.8%. "Just to say things have stopped getting worse is a huge step," says Michael McNamara, a vice-president for research and analysis at MasterCard Advisors.
Also contributing to the sense that some sort of bottom has been reached is a slight improvement in consumer confidence. In March it rose to its highest level since before the credit meltdown last fall, according to the Reuters/University of Michigan index of consumer sentiment. Confidence will also get a bit of a bump from the fact that initial jobless claims fell last week, to the lowest level in three months. However, consumers are still very value-focused, responding to promotions but spending modestly. "There's a lot of pent-up demand," says Matthew Katz, who leads the retail practice at corporate advisory firm Alix Partners. "But the consumer is not yet ready to declare victory, to go out and spend until things settle down in Detroit, the financial community, and the commercial real estate markets."
One bright spot in a generally bleak financial picture is online retailing. In a study released on May 5, the National Retail Federation says online retailers are better suited to weather the downturn than traditional stores. The report notes that online retailers are trying to retain existing customers as well as grab market share from weakened competitors.
The study polled 117 online retailers between Feb. 18 and Apr. 1. Forrester Research, which conducted the study, forecasts that online retail sales for 2009 will grow to $156 billion in 2009, up 11% from last year. However, online retail remains a small portion of the total retail market—about 6%.
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