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March sales brighten retailers' profit prospects
April 5, 2012 / 11:58 AM / 5 years ago

March sales brighten retailers' profit prospects

Shoppers enter a Macy's store in Arlington, VA, February 21, 2012. REUTERS/Kevin Lamarque

(Reuters) - Summery weather and an earlier Easter prompted shoppers to buy bright-colored clothing, with many boosting retailers’ profits by paying closer to full price than in recent years.

Of the 20 retailers tracked by Thomson Reuters, 10 beat Wall Street sales estimates, with the biggest increases coming from clothing sellers.

Victoria’s Secret parent Limited Brands Inc, Target Corp, Macy’s Inc and Gap Inc were among the retailers that beat analysts’ expectations for sales at stores open at least a year as they lured shoppers with blue, yellow and pink clothes and other spring merchandise.

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Target, TJX Cos Inc and Ross Stores Inc raised their earnings estimates after what analysts say was a month of fewer discounts.

“Nobody’s telling you what the profit number is, but it does appear like the promotional environment has eased,” said Morningstar analyst Jaime Katz.

Jefferies analyst Randal Konik said other retailers were likely to raise their estimates as well, once the Easter holiday is behind them.

“The companies have been seeing strong full-price sell-through, which means there is likely upside to first-quarter profit estimates,” Konik said.

Michael Niemira, chief economist of the International Council of Shopping Centers, said he expected April same-store sales to rise 3 percent to 4 percent. Based on ICSC’s tally of 22 retailers, March same-store sales rose 4.1 percent.

The Thomson Reuters Same-Store Sales Index registered a 4.3 percent rise in comparable sales for March, well above the 1.8 percent gain of a year earlier.

The Standard & Poor’s Retailing Index rose 1 percent, while the broad S&P 500 stock index was unchanged. Shares of two of the biggest winners -- Ross Stores and TJX -- were up nearly 3 percent. Shares of Buckle Inc, which had the biggest miss, fell 6.3 percent.

COLOR POP

Target shopping carts await customers outside a Target department store in Encinitas, California February 21, 2012. REUTERS/Mike Blake

Last month was the warmest March in more than 50 years, according to weather tracker Planalytics. As in February, the higher-than-normal temperatures helped clothing retailers bounce back from December and January, when they stocked up on merchandise for a winter that never came.

To give shoppers more incentive, the Easter holiday falls two weeks earlier in 2012, on April 8 compared with April 24 last year.

But retailers and analysts were quick to attribute their sales to more than the weather and the calendar.

One of the biggest reasons why clothes retailers did well was because of a broad change in their color offerings to go with the warm weather, most analysts said.

Gap, which had been a drag on the sector until recently, posted an 8 percent rise in comparable sales -- an indication that its brightly-colored spring clothes were selling well.

Costco shopping carts await customers outside a Costco Warehouse in Carlsbad, California February 28, 2012. REUTERS/ Mike Blake

Analyst Mark Montagna of Avondale Partners called the trend the “next big thing for apparel” and said Gap had done the best job with men’s colored pants and shorts.

“People were out shopping in March like they haven’t in quite a few months,” said Joel Bines, managing director of AlixPartners’ retail practice, adding that most were paying more for new clothes and accessories.

Barbara Kahn, director of the Wharton School’s Jay H. Baker Retailing Center and a marketing professor, said consumers were feeling more optimistic.

“Color is back,” she said. “People are excited about it. I think it’s happy, happy, happy.”

Consumer confidence rebounded to a 13-month high at the end of March, as optimism about jobs and income overcame higher prices at the gasoline pump.

SOME STUMBLE

One surprise miss came from Costco Wholesale Corp.

NBG Productions analyst Brian Sozzi said the warehouse club chain, which charges a membership fee to its customers, did not seem to draw as many shoppers as he would have expected, given its low prices.

“Costco has an outsized exposure to California, the state with the fourth-highest gasoline prices in the U.S.,” he wrote in a note to clients. “Somewhere there is a tie-in between stretched household budgets as a result of gas price creep and Costco’s bulk offerings, which do require a hefty upfront investment.”

“The misses that you see this month are more to do with the retailer’s offerings than to do with the shopper,” AlixPartners’ Bines said, “because the shopper was buying.”

Reporting by Nivedita Bhattacharjee and Jessica Wohl in Chicago, Dhanya Skariachan in New York and Mihir Dalal in Bangalore; Editing by Lisa Von Ahn, Bernard Orr

Our Standards:The Thomson Reuters Trust Principles.
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