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January retail sales beat but momentum could fade
February 4, 2010 / 12:44 PM / in 8 years

January retail sales beat but momentum could fade

SAN FRANCISCO/NEW YORK (Reuters) - Top U.S. retail chains ended their fiscal year with better-than-expected January sales, but the current first quarter could be tougher if consumers overspent during the holiday season.

<p>People shop at Target in New York, December 18 , 2009. REUTERS/Shannon Stapleton</p>

January same-store sales rose 3.3 percent based on a tally of 29 retailers compiled by Thomson Reuters, led by positive surprises from department store operator Nordstrom (JWN.N) and teen apparel chain American Eagle Outfitters (AEO.N).

Analysts were expecting sales at stores open at least one year to rise 2.5 percent. Sales rose in all categories except drugstores, which posted a 1.4 percent drop.

The results mark a rebound from a year ago, when sales fell 5.6 percent, and follow a bigger-than-expected 2.9 percent increase in December.

But the momentum will be hard to maintain as consumers return to watching their wallets and unemployment remains at 10 percent, industry experts cautioned. The Standard & Poor’s Retail Index .RLX fell 2 percent.

“The sustainability of January’s retail results will depend entirely on the job market -- it won’t hold if we stay at double-digit unemployment,” said National Retail Federation Vice President Ellen Davis.

The number of U.S. workers filing for jobless benefits unexpectedly rose last week, the Labor Department said on Thursday.

January, the final month of the holiday quarter, accounts for the smallest portion of its sales.

But with retailers avoiding the drastic clearance discounts that hurt January sales a year ago and consumers cashing in on gift cards received in December, chains like Macy’s Inc (M.N) and American Eagle Outfitters were able to raise their earnings forecasts.

However, Target Corp (TGT.N), the No. 2 U.S. discount retailer, posted disappointing sales and said it was prepared for tough business conditions in 2010.

”The industry is still low and slow,“ said Brian Girouard, leader of Capgemini’s global consumer products and retail sector. ”Consumers are spending lower than they were two years ago, and the recovery is quite slow.

Shares of Macy‘s, which operates the upscale Bloomingdale’s department store chain, rose 2.8 percent, while Target fell 3.1 percent.

SIGNALS FOR SPRING

Retailers have had more than a year to reposition their business for the “new normal,” where shoppers buy less and focus on value. That is helping them protect profits, even if sales have not returned to levels seen before the recession.

The question now is whether retailers can entice consumers to spend on full-priced spring merchandise after luring them in with discounts during the holiday season.

January sales at TJX Cos Inc (TJX.N) jumped 12 percent, helped by lower levels of clearance merchandise, and the off-price retailer raised its fourth-quarter earnings outlook. It said store traffic was accelerating.

TJX expects shoppers to remain focused on value and continue shopping at its chains even as the economy recovers.

Michael Niemira, chief economist for the International Council of Shopping Centers, said that while value was still a big driver of consumer demand, luxury was starting to come back.

Macy’s CEO Terry Lundgren echoed those sentiments. Speaking on cable business channel CNBC, he said he was not expecting employment growth for 2010, but saw an improved environment in January.

Macy’s January same-store sales rose 3.4 percent, beating estimates for a flat month as it raised its quarterly profit forecast [ID:nWNAB3034]. The retailer benefited from its strategy to tailor merchandise locally at its namesake stores and a strong performance at Bloomingdale‘s.

Warehouse club operators Costco Wholesale Corp (COST.O) and BJ’s Wholesale Club Inc BJ.N both posted sales that beat estimates. Shoppers have been heading to the clubs to get discounts on staple items, like food and cleaning supplies.

But teen apparel retailer Hot Topic HOTT.O posted a decline that was worse than forecast. January same-store sales fell 13.1 percent, missing Wall Street estimates for the third straight month.

The company also said it expected fourth-quarter earnings to be at the low end of its previous outlook of 18 cents to 20 cents a share.

Sales at Hot Topic, which sells rock ‘n’ roll-inspired clothing as well as music and accessories, have weakened in the absence of new must-have products like its hugely popular “Twilight” merchandise.

Reporting by Nicole Maestri in San Francisco, Michele Gershberg, Martinne Geller, Phil Wahba and Dhanya Skariachan in New York, Jessica Wohl in Chicago; Editing by Lisa Von Ahn and Matthew Lewis

Our Standards:The Thomson Reuters Trust Principles.
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