The Forecast: Winter Storms Chilled January Retail Sales

January retail sales are suffering from more than the usual post-holiday blues.

Retail observers are expecting disappointment on Thursday, when major retailers report January sales. After December sales fell short of expectations, poor weather during January dampened hopes of a strong end to the fiscal year.

The International Council of Shopping Centers' weekly tally showed sales dropped week-over-week throughout January, even as sales remained higher than the same time in 2010. The ICSC revised its estimate for January sales to between 1.5% and 2% growth, after dropping the previous estimate to 2% from 2.5% a week ago.

"Downright Awful Weather"

The main culprit was the weather, said Chief Economist MIchael Niemira, who noted there was 60% more snowfall across the country in January than last year -- as much as 266% in the Northwestern states.

The weather just put a damper on what was already a weak trend, say experts. Shoppers continue to hold off on non-essential purchases after spending during the early holiday sales in November, they say.

"Weather in January has been downright awful for most of the country, giving retailers the perfect excuse for what we expect to be rather disappointing [comparable sales] results on Thursday," said Rob Samuels, managing director of Phoenix Partners. In a report to investors, he noted "new spring product is not moving." He forecast department stores and discounters would do better in January than teen apparel retailers. He singled out Zumiez (ZUMZ) as one apparel merchant that should see noticeable increases, while Aeropostale (ARO), American Eagle Outfitters (AEO), Gap (GPS) and Hot Topic (HOTT) will see lower comparable sales (for stores open at least a year).

Nonexistent Sales Momentum

Even before the bad weather, sales momentum going into January "was virtually nonexistent," noted Brian Sozzi, retail analyst at Wall Street Strategies. He noted most retailers had missed their December estimates for comparable sales and quickly marked down new merchandise in January -- a sign of unsteady demand and reluctant consumers, he said.

Don't expect retailers to offer much perspective on their first-quarter sales when they begin reporting fourth-quarter earnings later this month, warned Sozzi, who noted few merchants clarified their fourth-quarter guidance when they reported December results. He recommended shorting Gap and American Eagle ahead of the January sales numbers.

The lack of guidance is going to weigh on retail stocks, said Samuels. "The group will likely remain under pressure until we get some more clarity," he said. He forecast the merchants will be focused on protecting profit margins instead of raising sales.

Inflation a Bigger Concern

But the experts note January is considered a weak sales month, anyway, so they are taking the sales forecasts with a grain of salt. The bigger worry is inflation and pressure on prices brought on by rising costs, they say.

The rising costs may not be all bad news, if they force merchants and manufactures to create more enticing products, noted Samuels. Most experts have noted consumers were not excited by the stocks in stores and there were no must-haves on holiday shopping lists, so shoppers were easily turned off by prices.

"In the current environment, we hear far too little about product innovation," Samuels wrote. "The winners in the space will continue to be those companies that can continue to give the consumer newness and a reason to shop."

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