A Valentine's Day Surprise for February Retail Sales

Valentine's Day sale
Valentine's Day sale

Retailers got an unexpected valentine from shoppers: Strong February sales. But whether they repeat the feat in spring could depend on gasoline prices and how good shoppers feel about their finances.

According to the monthly sales tallies from Thomson Reuters, major merchants reported an average increase of 4.2% in comparable sales (for stores open at least a year) during February, much better than the 3.6% its analysts had projected. And strength came across the board, with discount stores up 4.9%, helped by rising food sales, and department stores up 5.3%, thanks to upscale shoppers.

More important, the sales increase beat the 4% growth seen during the same time last year, meaning retailers' sales are showing some mild momentum.

A Seesaw in Spring?

Most retailers reported that the month started slowly, due to bad winter weather around the country. But weekly totals picked up as the month went along, thanks to Valentine's Day and Presidents' Day sales. But results are expected to seesaw in spring, with shoppers retreating after the February surge. Merchants expect March will slow down as still-cautious consumers save up for Easter sales, which will come later this year than in 2010.

Shoppers remain largely cautions and are trying to spend less on average, especially those at the lower end of the economic scale. BJ's Wholesale Club (BJ), reported sales were up 7.5%, or 3.9% excluding gas sales, but it noted that the increase came thanks to a 3% increase in traffic that offset flat average transaction amounts.

Fellow discounter Target (TGT) reported that sales were up 1.8% and said nearly half of increase was driven by increased transactions, with only a small increase in average transaction size. JC Penney (JCP), which reported sales were up 2.7%, also noted that growth came from an increase in transactions in the mid-single-digit percentages that offset lower average prices and items per transaction.

Feeling More Flush Up Top

Things were a little different in the upper end: Both Saks (SKS) and Nordstrom (JWN) showed clear sales increases: 15.3% and 7.3%, respectively. The class distinction was obvious at Nordstrom, whose full-price stores were up 9.6%, while sales at its Rack outlets rose only 1.6%, reversing the trend seen during the recession.

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Many observers have noted that high-income households are spending more now, emboldened by strong returns from the financial markets. Mid- and low-income shoppers are shopping more but spending the same, and retailers have noted that these groups' shopping is increasingly influenced by promotional events.

That could be bad news for March totals. Most merchants expect the shift of Easter to late April this year will depress this month's sales. Macy's (M), which posted comparable sales were up 5.8% in February, forecast combined March-April sales will be up about 3%, but April will be the stronger month due to the later Easter and moving cosmetics promotions from March to April this year.

Victoria's Secret parent Limited Brands (LTD), whose sales rose 12% in February, estimated that the later Easter will shrink sales growth in March by three to five percentage points and leave sales flat over the same time last year.

"All Bets Off"

Most retailers had little to add to the numbers, after laying out some conservative outlooks during their quarterly reports a week earlier. Merchants have already warned that their costs are rising. And while shoppers' confidence is improving, the housing and labor markets aren't, which doesn't bode well for increased household spending.

But so far, so good, says Brian Sozzi, retail analyst of Wall Street Strategies. February was fueled by rising consumer confidence and shoppers taking money from savings, but "all bets are off for March and April, the heart of spring shopping."

Consumers will be dealing with rising prices for gasoline and food, as well as negative economic news, Sozzi wrote in a note to investors. And he said merchants are expecting to raise prices noticeably "after a year of companies eating ticket increases from manufacturers." It sounds like keeping the momentum going in retail will be a tricky task in the next few months.

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