March Retail Sales Growth Soars

March Retail Sales Reach Record High of 9.1%The early arrivals of Easter and spring got shoppers out of hibernation in March, but experts caution about reading too much into most retailers' strong sales numbers. They warn that the trends underlying double-digit sales gains this month show shoppers are still counting their pennies.

The monthly tally of comparable retail sales -- in stores open at least a year -- by Thomson Reuters posted the strongest monthly sales gains since the company started tracking in 2000. Total sales were up 9.1% above the same time last year, better than the 6.3% the Thomson analysts had forecast. The beaten-down department store sector appears to be recovering well, with sales up 12.3%, while apparel -- another sector that was hit hard by the recession early on -- was up 11.8% and discount retailers were up 10.1%.

But the tug-of-war between thrifty shoppers and retailers trying to wring more profits out of them continues in force. While several merchants hiked their earnings forecasts for the first quarter, experts warn that a lot of the gains are relative, since the year-ago period was so weak. And, even while consumer confidence seems to be bouncing back, observers warn unemployment is still acting as a brake on sales.

The strong March numbers may also be a case of robbing Peter to pay Paul, since the early Easter, which fell on April 4, gave March a bump in sales that will likely come at the expense of April sales. The International Council of Shopping Centers estimated that some six percentage points of March's growth rate could be explained by the earlier holiday this year. Easter Sunday was April 12 last year, which left much of the holiday's impact in April.

Hints of Pent-Up Demand

Limited Brands (LTD), which posted a healthy 15% increase in comparable sales, warned its sales in April will be up in the low single-digit percentage because it will lose out on those Easter sales that helped inflate March numbers. Macy's (M), which showed a 10.8% comparable sales hike in March with increases at both Macy's and Bloomingdales, said it expects sales to be flat in April, which will leave the first quarter sales up about 5%.

But while also cautioning that the year-over-year comparisons for March are the easiest retailers have seen in months, Thomson Reuters' analysts pointed out that consumer confidence has risen recently, despite an unemployment rate that has stayed at 9.7% since January. That hints at pent-up demand, but analysts also noted that the retailers whose performance stands out -- such as Kohl's (KSS), Aeropostale (ARO) and TJX (TJX) -- suggest consumers are still focused on value.

Aeropostale, posted a record sales increase in March, up 19%, compared to a 3% increase a year ago. Aeropostale lured shoppers during the recession by cutting prices and focusing on lower-priced items, while rival Abercrombie & Fitch, (ANF) at first held on its its pricing and saw sales tank by double-digit percentages. But as it loosened its pricing last year, Abercrombie began to recover and posted a 5% increase in comparable sales in March.

"Focused on Value"

TJX -- the parent of discounters Marshalls, TJ Maxx and HomeGoods -- hiked its guidance for the first quarter and the year, thanks to the strong March sales. It posted a 12% sales increase, on top of the 11% it had in the same time a year ago. That performance "punctuates our belief that consumers will remain focused on value even as the economy improves," CEO Carol Meyrowitz said in a statement. The company raised its first-quarter earnings forecast up to between 76 cents and 79 cents per share, 55% to 61% above last year's quarter, and raised the forecast for fiscal 2011 to between $3.17 and $3.31 per share.

Kohl's also raised its guidance after posting a comparable sales increase of 22.5% in March, which CEO Kevin Mansell said was mainly due to higher store traffic. Kohl's projects first quarter earnings will be 55 cents to 57 cents per share, up from its previous guidance of 48 cents to 52 cents. The company is also projecting the Easter shift will leave April sales down by low double-digit percentages.

Rival J.C. Penney (JCP) also raised its sales and earnings guidance for the first quarter, after posting a better-than-expected sales increase of 5.4% in March. Penney's management forecast sales will be up 2% for the quarter, compared to its previous forecast of flat sales, and earnings will come in at 20 cents to 24 cents per share, compared to its last estimate of 16 cents to 20 cents.

Retailers have noted that shoppers are out in stores more since the holidays but are still spending less overall than before the recession. Warehouse club BJ's Wholesale (BJ), which reported a solid 10.6% increase in comparable sales for the month, said the growth came from a 7% increase in traffic, while its average transaction size was flat year-over-year.

Putting Luxury Sales in Perspective

Even the luxury retailers are seeing benefits from adjusting prices, as wealthy customers also tightened their belts to a degree. Nordstrom (JWN), which had adjusted inventories early during the recession, as luxury sales tanked, posted a 16.8% sales increase in March. Saks (SKS), which eventually brought down some prices in the designer departments, saw comparable sales rise 12.7% during the month.

The recent surge of luxury sales could just be pent-up demand that may subside shortly, warns Michael McNamara, vice president of MasterCard SpendingPulse, the information service of MasterCard Advisors that tracks retail spending across all payment types. McNamara notes the 22.7% March increase in overall luxury sales is "an eyepopping number," but not so much when compared to a 19% drop a year ago.

In fact, all sales should be put in the context of the weak sales of a year ago before reading signs of economic recovery in their growth rates. For example, sales of men's apparel and footwear were up 7% in March, but that's still 8% below where they were two years ago.

"A Resetting of the Retail Landscape"

Housing-influenced sales, such as furniture and appliances, also got a boost from tax credits, McNamara notes, but they need to be seen in the context of the sharp drops they suffered during the recession. For example, furniture sales were up almost 14% in March, but that's still 17% below the peak sales that sector saw four years ago.

"It shows the economy, and specifically this sector, still has a ways to go in terms of its recovery," says McNamara.
Shoppers are spending, but defensively, he adds.

"There's really a resetting of the retail landscape," he says, "where you're seeing growth rates that are significant, but it's really returning to a more normal distribution of sales."
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