February 7, 2013 / 1:11 PM / 5 years ago

Retailers' sales beat forecasts, but worries remain

(Reuters) - Many top retailers reported strong January sales on Thursday after offering merchandise and deals that drew in shoppers in spite of higher payroll taxes.

The warehouse style of shopping is shown inside a Costco store in Carlsbad, California February 28, 2012. REUTERS/ Mike Blake

But shares of many retailers fell as investors worried that the sales owed too much to margin-sapping discounts and that the tax hit to take-home pay would hurt spending in coming months.

Macy’s Inc, whose shares rose 0.4 percent, was an exception. Its sales at stores open at least a year jumped 11.7 percent, in part because it got new merchandise into stores quickly. The results easily beat Wall Street forecasts, and the department store chain raised its profit forecast.

In contrast, Kohl’s Corp, reported a 13.3 percent jump, but that came in large part from clearing out merchandise at a discount ahead of spring. The department store operator left its profit outlook unchanged, and its shares fell 1.8 percent.

“January sales don’t give you much of a sense what’s coming,” said Dan Hess, chief executive of Merchant Forecast, which provides financial research on the retail sector. “How much of it was clearance; how much of it was new merchandise?”

Besides Macy’s, low-priced retailers TJX Cos Inc and Ross Stores Inc as well as teen chain Zumiez Inc raised their outlooks. Department store operator Stage Stores Inc, said it would hit or beat the high end of its earlier estimate.

Overall, same-store sales rose 5 percent in January across 20 retailers, according to Thomson Reuters I/B/E/S. That was above both analysts’ estimates of a 3.1 percent increase and the year-earlier 2.8 percent gain.

Gap Inc’s sales came in slightly above Wall Street forecasts, as the company’s affordable Old Navy chain offered colored denims, coats and dresses that were a hit with shoppers. But Janney Capital Markets said in a note that investors would view Gap’s modest profit estimate for the fourth quarter ended on February 2 as “not good enough.” The company’s shares were down 4.5 percent.

Costco Wholesale Corp, Target Corp and Victoria’s Secret parent Limited Brands Inc also reported stronger-than-expected January sales.

Analysts said a number of factors gave January an artificial boost: Unusually cold weather mid-month in big parts of the country helped clear out winter merchandise, and a long weekend before New Year’s Day helped. January is also a low-volume month, so the numbers are less important than, say, those for November and December.

The International Council of Shopping Centers said it expects February same-store sales to rise 2.8 percent to 3 percent.

The Standard & Poor’s Retail Index was down 1 percent in midday trading, compared with a 0.8 percent decline for the broad S&P 500.


The mood of U.S. consumers improved in January after a deal in Washington at the start of the month averted the country going over the “fiscal cliff” that could have raised taxes significantly, a survey released last week showed.

At the same time, the take-home pay of millions of Americans fell in January because of a 2-percentage-point increase in payroll taxes.

That higher tax could pinch shoppers in coming months as relief about the “fiscal cliff” gives way to the reality of smaller paychecks.

“The amount of money that is being taken out (from the tax increase) is a real amount of money, and you may see more paycheck-to-paycheck cycles,” said Kurt Kendall, a retail strategist at consulting firm Kurt Salmon.

Cato Corp, a specialty retailer offering low-price fashion, reported a 12 percent drop in same-store sales and pinned part of the blame on the payroll tax.

Target CEO Gregg Steinhafel said in a statement that customers are showing “discipline in the face of a slow economic recovery and new pressures,” including payroll tax increases.

In that environment, retailers have little room for error.

Ann Inc said the brightly colored clothes it sold at its Loft chain failed to catch on with shoppers, and its sales estimate for the fourth quarter ended on January 31 disappointed Wall Street, sending its shares down 7 percent.

Department store operator Bon-Ton Stores Inc and teen chains Buckle Inc and Wet Seal Inc also reported disappointing sales.

At the higher end, Nordstrom Inc reported an 11.4 percent jump in same-store sales, probably buoyed by a stock market run-up.

“The stock market has also helped - it frees higher-end individuals to go shopping,” said David Bassuk, head of AlixPartners’ global retail practice.

The same-store sales retail index offers only a glimpse of retail spending as major chains like Wal-Mart Stores Inc, Sears Holdings Corp and Best Buy Co Inc do not report monthly sales.

Reporting by Phil Wahba in New York, and Nivedita Bhattacharjee and Jessica Wohl in Chicago; Editing by Lisa Von Ahn

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