Costco Leads March Sales; Ross, Zumiez See Upside

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Retailers posted soft March sales gains Thursday as abnormally cold weather and an early Easter dampened spending, leaving shelves bulging with spring merchandise.

March sales at stores open at least a year rose 1.4% vs. a year ago, says Ken Perkins, president of Retail Metrics. The results were roughly in line with analysts' already lowered expectations. Only 43% of retailers beat views, while 57% missed.

"But the numbers could have been worse, given the head winds some of the retailers were facing," Perkins said.

Easter holiday store closures on March 31 hurt many retailers, especially apparel chains, as they lost a weekend day of sales vs. March of last year, he says.

Retailers faced difficult weather comparisons with March 2012, when above-normal temperatures led to strong spring apparel sales. This March, abnormally cold weather and above-normal snowfalls in parts of the U.S. hurt spring clothing sales and chilled sales of lawn products and outdoor furniture.

Zumiez Zooms

But the month saw some winners. Shares ofZumiez ( ZUMZ ) rocketed 15.66% in midday trading as the action sports retailer posted the biggest upside surprise of the group, with a 2.1% gain in March comps vs. a year ago, ahead of forecasts for an 8% decline.

Other chains -- including Victoria's Secret's parent LBrands ( LTD ) and off-price retail operatorRoss Stores ( ROST ) -- also saw strong stock-price gains after reporting same-store sales ahead of views. Shares of warehouse club giantCostco Wholesale ( COST ) and off-price retail operatorTJX Cos. ( TJX )also saw a nice uptick.

But overall the showing was a mixed bag.

Costco led the pack in March with a 4% rise in same-store sales, below forecasts for a 5.6% rise, as it got stung by lower fuel prices and a strong dollar. But when you look at its core business, excluding the impact of gas and international weakness on its sales, comps were roughly in line with views, Perkins says.

L Brands was among the handful of chains that beat views. It posted a 3% rise in same-store sales vs. a year ago, compared with forecasts for roughly flat sales.

Ross saw a 2% increase in March comps vs. a year earlier, besting forecasts for a 1.3% decline. CEO Michael Balmuth expects a 5% to 6% rise in April comps.

After Thursday's bell, apparel giantGap (GPS)saw comps slip 1% from a year earlier, slightly ahead of forecasts for a 1.9% decline.

TJX saw same-store sales slip 2% in March, below forecasts for a 1.4% decline. But April is looking better. "April is off to a good start, our inventories are in great shape, and we are seeing an enormous amount of desirable product in the marketplace," said TJX CEO Carol Meyrowitz in a statement.

The specialty apparel group was the month's weakest performer, with a 0.2% decline in same-store sales.

In addition to the weather drag, retailers faced other head winds in March. Macroeconomic data softened during the month as both weekly jobless claims and non-farm payrolls weakened.

Still, Perkins isn't putting too much weight on the March results.

"The hope is it doesn't say much about consumer spending," he said. "There were some one-time mitigating circumstances taking place in March."

He says you have to look at same-store sales for March and April in tandem to determine any kind of a spending trend.

Perkins expects a sequential improvement in April from sluggish March results as consumers continue to benefit from delayed tax refunds playing catch-up, falling gas prices and an extra selling day relative to last year due to the Easter holiday calendar shift.

L Brands, Ross Stores and TJX are among those retailers expected to see April comps up in the mid-single-digit range, Perkins says.

"Hopefully, the rise in the stock market and continued uptick in home prices will lead to consumers feeling better about their net worth and spending," Perkins said.

Michael Niemira, chief economist at the International Council of Shopping Centers, also calculates that March same-store sales rose 1.4% vs. a year ago.

The cold weather blast was a drag on retailers' comps in February and March, he says. But that means some pent-up demand has been built up that could be helpful to sales of items like apparel in April.

"I am optimistic that April's numbers will have a more positive outlook, as warmer temperatures should drive demand for seasonal apparel," Niemira said.

Niemira expects April same-store sales to increase in the range of 2% to 3% vs. a year ago.

Fat Inventories

Given how slow sales have been, retail inventories should be in relatively good shape, adds Perkins. But retailers will still have to discount to clear out spring merchandise this month, which "certainly" will erode margins a bit, he says.

Overall, the environment for retailers is lukewarm.

"The hourglass/barbell situation continues onward," said Perkins.

High-end retailers -- such as Michael Kors (KORS),Nordstrom (JWN),Tiffany (TIF)andCoach (COH) -- should fare better than the rest of the group, Perkins says. He expects the lower end of the barbell -- including discount chains like Costco, dollar stores and off-price retailers like TJX and Ross -- to also fare better than other segments of retail.

But he sees the midtier department stores and specialty apparel chains having a little tougher time in this retail environment.

Retailers continue to face head winds. A low savings rate and slow employment growth are among them, Niemira says. And he sees a relatively "sluggish" rate of economic growth in the second, third and fourth quarters.

"As long as we're in a sluggish economic growth pattern, we can't expect a lot of growth from the retail sector," Niemira said.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas

Referenced Stocks: COST , LTD , ROST , TJX , ZUMZ

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