Wal-Mart shoppers
Joe Raedle  /  Getty Images file
Shoppers browse the aisles at a Wal-Mart store in Bowie, Md., last month. The nation’s retailers posted better-than-expected January sales Thursday, as consumers armed with gift cards hit the malls to purchase clearance items and spring apparel.
updated 2/2/2006 8:57:34 PM ET 2006-02-03T01:57:34

The nation’s retailers reported better-than-expected sales in January, as shoppers armed with holiday gift cards and lured by mild weather returned to stores and malls in search of clearance and spring merchandise. The shopping surge wasn’t expected to last, however, as consumers face higher interest rates, a cooling housing market and high energy costs in the months ahead.

As merchants reported their results Thursday, winners cut across all categories, including discounters like Wal-Mart Stores Inc. and Target Corp., wholesale club operators such as Costco Wholesale Corp., teen retailers including Abercrombie & Fitch Co. and mid-price and upscale department stores such as Nordstrom Inc. and J.C. Penney Co. Inc.

Even Gap Inc., which has been struggling to find the right fashion formula, turned in a sales performance that pleased Wall Street.

Overall, merchants’ reports provided some encouraging news about fourth-quarter profits, as many stores at least backed their earnings forecasts. Federated Department Stores Inc. raised its earnings outlook as it announced sales in line with analysts’ projections.

“In January, there was a collision of one-time factors working for retailers,” said Michelle Bogan, retail strategist at Kurt Salmon Associates. But she cautioned that “retailers shouldn’t read too much into the numbers now that consumers have gotten their holiday bills and appear to be tightening their wallets.”

The International Council of Shopping Centers-UBS sales tally of 65 retailers posted a 5.1 percent gain, better than its forecast of up to 4 percent. January’s figures also marked the industry’s best performance since June 2005, when the tally rose 5.2 percent. The index is based on same-store sales, or sales at stores open at least a year, considered the best indicator of a retailer’s health.

While January is the least important month of the retail calendar, its significance has grown since 2001 because of the impact of gift cards, said Michael P. Niemira, chief economist for the mall association. Although people buy gift cards in December, the retailers don’t include them in their sales tallies until the cards are redeemed.

MAJOR RETAILERS
The cards do have many advantages for retailers, though, especially the fact that shoppers tend to spend well above the face value of the cards when they redeem them.

Retailers were also helped by warmer-than-usual weather in the Northeast and Midwest, which put consumers in the mood to buy spring clothes and also blunted the effects of high heating costs. Retailers were also helped by modest gains in the year-ago period, when two winter storms dampened business.

Merchants are also reaping the benefits of a steadily improving job market, which helped send consumer confidence last month to its highest level in three and a half years. The Labor Department reported Thursday that the number of Americans filing for unemployment benefits fell to 273,000 last week, a decline of 11,000 from the previous week. The report bodes well for a significant improvement in the labor market.

Still, merchants face some big challenges in the coming months as consumers feel the squeeze of higher heating bills with the arrival of colder weather. A weakening housing market and rising interest rates are also expected to limit spending. What’s also alarming is that shoppers may be on the verge of tapping out — a government report issued Monday said Americans’ personal saving rate dipped into negative territory in 2005 as consumers are depleting their saving to finance their spending.

“Consumers are going to be more mindful of spending,” Bogan added.

Major Market Indices

Wal-Mart’s same-store sales rose 4.7 percent, a reversal of a disappointing December sales performance and marking its biggest gain since May 2004, when it racked up a 5.9 percent increase. Analysts polled by Thomson Financial had expected a 4.4 percent gain for January.

But the world’s largest retailer lost a little thunder earlier this week amid Exxon Mobil Corp.’s announcement that its annual revenue reached $371 billion last year. That means the discounter will give up its status at the top of the Fortune 500 list when it’s released this spring. Wal-Mart, whose fiscal year runs through January, reported $312.96 billion in revenue.

Target had a robust 5.2 percent gain in same-store sales, better than the 4.8 percent forecast.

Department stores generally had a strong performance. Nordstrom posted a robust same-store sales increase of 6.0 percent, better than the 4.7 estimate.

J.C. Penney Co. Inc.’s same-store sales at its department store group were up 2.5 percent, surpassing the 2.0 percent forecast. The company cited a strong response to spring merchandise.

Federated announced a 1.0 percent increase in same-store sales, in line with the 1.2 percent Wall Street projection. The company attributed higher profits in the fourth quarter to a better-than-expected performance at both its Federated division stores and the May Department Stores Co. divisions acquired last year.

But Kohl’s Corp. was a straggler, turning in a modest 2 percent same-store gain, weaker than the 3.5 percent forecast.

Gap posted a 1 percent same-store sales gain, much better than the 2.8 percent drop Wall Street expected. Helped in part by a one-time tax benefit, the company raised its full-year profit outlook, though it cautioned that profit margins last month were significantly below January 2005 levels as the retailer heavily discounted winter goods.

Talbots Inc. had a slim 0.8 percent same-store sales gain, in line with the 0.6 percent forecast.

Teen retailers again did well, helped by strong demand for shrunken hooded tops and cargo-style capris, said John Morris, an analyst at Harris Nesbitt. Abercrombie & Fitch’s same-store sales soared 33 percent, better than the 15.7 percent forecast.

Pacific Sunwear of California Inc. had a 4.9 percent same-store sales increase, better than the 1.6 percent estimate.

On Wednesday, Limited Brands Inc. said its same-store sales were unchanged, in line with the 0.1 percent estimate.

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