Retail Sector Exceed Expectations for February

Shoppers prevailed over winter weather last month, as retail sales showed impressive gains nearly across the board. According to the International Council of Shopping Centers, an index of 31 retailers showed sales rose by 3.7% from a year ago. Of course, comparisons are relatively easy considering the consumer spending environment from a year ago, but some of the factors that restricted sales then have actually worsened in the past year. Unemployment and underemployment have expanded, consumer credit has continued to contract, and consumer confidence remains in the dumps.

So, while some better results were expected, the actual result was far better than most economists had anticipated. February 2009 retail sales dropped by 4.3% as consumer confidence hit an all-time low, so they are still down about .8% from the level of two years ago. After three consecutive monthly gains, this is hopefully a meaningful normalization.

The latest data for retailers is stronger across the board from discounters to higher-end merchants. Target (TGT) experienced same store sales growth of 2.4%, which was more than double the improvement expected. Family Dollar (FDO) reported better comparable store sales, and has lifted guidance for the quarter ahead. On the other side of the spectrum, Nordstrom (JWN) same store sales rose by 10.3% and Abercrombie & Fitch (ANF) rang the registers 5% more in the quarter, which bested analysts’ expectations by almost 12%. The results were also geographically diverse as some of the areas hardest hit by the recession like California and Florida rebounded strongly last month.

Certainly, one month of data should not be given too much weight, especially when it is being compared to an even bigger decline from the year before. Overall the equity market is taking this positive news in stride, as February is generally not an extremely important month for retailers relative to the last quarter of the year. We will be interested to see whether the trend continues in the coming few months, but this is the sort of normalization that retailers have been desperate to see. We would expect to see sales continue to look positive in relation to last year for at least the next couple of months. However, we will want to see job growth and more freely available credit before we can become truly optimistic about a lasting rebound in consumer spending.

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