Video: Retail reprieve

updated 3/6/2008 11:54:05 AM ET 2008-03-06T16:54:05

The nation’s retailers got a little reprieve in February, as consumers hesitantly returned to malls and stores after retrenching in recent months. Among the big winners was Wal-Mart Stores Inc., whose results beat expectations.

Nonetheless, as retailers reported mixed February sales results Thursday, it was clear that consumers struggling with high gas and food prices and a slumping housing market aren’t splurging and are still focused on necessities. Among the weak performers were apparel stores Gap Inc., Limited Brands Inc. and Wet Seal Inc.

But analysts were hopeful.

“This is giving a glimmer of hope to retailers,” said Ken Perkins, president of RetailMetrics LLC, a research company in Swampsott, Mass. “These numbers aren’t great, but it certainly reverses the downward slide in sales in the last six months.”

According to a tally by Thomson Financial, 16 retailers beat rather pessimistic forecasts, while 9 merchants turned in results that missed expectations and one met projections. The tally is based on same-store sales, or sales at stores open at least a year, and are considered a key indicator of a retailer’s health.

The February results, while still sluggish, were encouraging to the industry, which had braced itself for another month of dismal sales. In January, the nation’s retailer reported its weakest January performance in nearly four decades, extending a malaise that had deepened since the holiday shopping season. Perkins reasoned that consumer spending levels were so low that there “may have been some pent-up demand” last month. Also, the arrival of brightly colored spring merchandise could have enticed some buying. Perkins and other analysts also believe that the expectation of tax rebate refunds could have also helped shoppers get in the mood to spend.

Still, February — a month when stores get rid of winter merchandise and make room for spring receipts — is the least important in a retailer’s sales calendar. Analysts are closely monitoring the critical March and April period, which is expected to be challenging. An early Easter, which falls on March 23, historically doesn’t help spark sales of warm weather clothes. More importantly, shoppers continue to be squeezed by higher gas and food costs and are struggling with a housing slump and credit crisis that show no signs of abating. Video: Suze Orman on recession strategies

Stores are also battling weak consumer confidence, which plunged in February, according to the Conference Board. The reading was the lowest since February 2003, just before the U.S. invaded Iraq.

Meanwhile, the job market, which had helped boost spending in recent years, has shown signs of slowing. The Labor Department reported Thursday that the number of people signing up for unemployment benefits fell sharply last week, but the news failed to change the overall picture of a weaker employment market. New applications filed for unemployment insurance fell by a seasonally adjusted 24,000 to 351,000 for the week ending March 1. A year ago, new filings for unemployment benefits stood at 327,000. Economists are now awaiting government payroll data for February that’s to be released Friday.

Given this harsh economic environment, discounters like Wal-Mart have benefited from consumers trading down. The company, which has been aggressively focused on price-cutting, reported a 2.6 percent gain in same-store sales. Analysts surveyed by Thomson Financial expected a 1.1 percent gain. The company said electronics, groceries and health items helped boost sales. It said apparel sales improved, though the home goods business remains weak.

Discount rival Target Corp., said same-store sales rose 0.5 percent, ahead of analyst expectations of a 0.2 percent decline. The strongest-selling merchandise included healthcare products, food and shoes, Target said. Home furnishings, men’s apparel and accessories were weaker.

Major Market Indices

J.C. Penney Co. reported that same-store sales in its department store business rose 1.5 percent. Wall Street had expected a 2.2 percent decline. On Wednesday, Saks Inc., which operates Saks Fifth Avenue, reported a 3.4 percent gain; analysts had expected sales to be unchanged from the year-ago period

Limited Brands struggled with a 9 percent decline in same-store sales, though it was better than the 11 percent analysts forecast. AnnTaylor Stores Corp. reported a 1.7 percent decline in same-store sales, beating forecasts for a 3.6 percent dip. Gap’s same-store sales fell 6 percent, worse than the 2.8 percent analysts expected.

Pacific Sunwear of California Inc. said same-store sales rose 6 percent in February. Analysts expected a 0.4 percent decline.

Wet Seal posted an 8.2 percent decline, worse than the 2.2 percent decline analysts projected.

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