Costco, Limited Brands, Gap Lead So-So February Retail Sales

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Retailers posted soft sales gains in February as increased payroll taxes, delayed tax refunds and high gas prices caused consumers to trim spending.

February sales at stores open at least a year rose 2% vs. a year earlier, said Ken Perkins, president of Retail Metrics. The results include drugstores. Analysts had expected a 2.5% rise.

If you back out drugstores, which turned in negative same-store sales for the month, comps were up 4.3%. That was better than the 3.3% rise analysts forecast.

In the aggregate, the results for retailers that reported Thursday came in worse than expected, Perkins said.

"But even though they missed, it could have been worse, given the weather was unfavorable, and all the impediments they faced," he adds. "They were soft, but we should see a bit of a turn in March."

Retailers faced a number of head winds. On the macro front, consumers were hit with rising gas prices, delayed tax refunds and the payroll tax increase, which is hurting moderate-income Americans. Consumers are also worried about the sequester and persistent unemployment, Perkins says.

Perkins says his store checks showed some "buzz" at the stores around Presidents Day weekend, but it was pretty soft for much of the month, which was also hit with cooler weather than last year, giving shoppers less incentive to go out and hit the stores. A snowstorm in the Northeast during the month chilled spending.

Strong Chill

The chill was so strong, the pickings for standouts were slim even among the industry's strongest performers.Costco Wholesale ( COST ) led the pack with a 6% pop in comps vs. a year earlier, sailing past views for a 4.6% rise, as it benefited from higher gas prices.

Costco's strong results had an "outsized impact" on the overall index because so few retailers -- only 16 -- reported Thursday after a number of chains stopped reporting monthly comps starting in February, Perkins says.

A few specialty apparel retailers saw a solid month. Victoria's Secret's parent,Limited Brands ( LTD ), saw same-store sales rise 3% vs. a year earlier, topping views for a 2.8% gain.

Gap ( GPS ) saw February same-store sales rise 3% vs. a year ago, ahead of views. Its Old Navy global business led the way with a 6% rise in comps for the month. Analysts forecast it would show a 2.3% rise in comps vs. a year ago.

Gap Rises On News

Gap's shares rose close to 4% in midday trading after the apparel giant inadvertently reported February results earlier than expected. Off-price retail operators slowed the pace a bit in February.Ross Stores ( ROST ) saw its comps slip 1%, well below the 1.3% rise forecast by analysts. CEO Michael Balmuth attributes the decline mainly to the delay in income tax refunds. But sales increased toward the end of the month.

TJX Cos. ( TJX ) saw a 1% rise in February same-store sales, ahead of the 0.7% rise analysts had forecast. CEO Carol Meyrowitz said business trends picked up at the very end of the month, leading February comps to come in higher than expected.

Both Ross and TJX were up against tough comparisons. Both saw a 9% gain in February 2012 same-store sales.

Teen retailers had a tough month. Teen unemployment remains high and there's not a lot of fashion buzz in the space, says Perkins. Action sports retailerZumiez (ZUMZ) saw comps slide 8.9% from a year earlier, well below the 1.3% drop analysts were expecting. It was the biggest negative surprise of the month.

Teen apparel retailer Buckle (BKE) posted a 1.1% decline in February comps, better than the 2.3% drop analysts had forecast.

Perkins says there's a bit of a "bifurcation" unfolding in terms of consumer spending. The higher-income-level consumers, who are benefiting from scoring gains in the stock market rally and rising home values are spending at a more "robust" clip than the moderate-income consumers, who may not be reaping the same benefits and who have been disproportionately hurt by high gas prices and the payroll tax increase.

Perkins says consumer confidence is improving among those higher-net-worth individuals. But those consumers who are missing out on the market rally and the rise in home values, and other benefits remain very cautious about their outlooks, he adds. The spending on the part of these consumers remains "deal oriented" and driven by specific events such as back-to-school.

Michael Niemira, chief economist at the International Council of Shopping Centers isn't reading too much into the February numbers.

The retailer "tone" in their own reporting was softer than the numbers themselves, he says. He tallies comps rose 1.7% vs. a year earlier, including drugstores. They rose 4.2% excluding drugstores. Both tallies are much in line with last year's average trends, he says.

Bad weather, the sequester and the payroll tax increase "weighed on" the numbers, he adds. But he says the improving housing market is helping to offset some of these drags. The housing market, he adds, is the best leading indicator for retail spending. And new and existing home prices remain strong as housing continues on the recovery path.

Niemira expects March same-store sales to rise 3% to 4% vs. a year earlier -- including drugstores -- due in part to the earlier Easter holiday, which falls on March 31 this year vs. April 8 in 2012. The calendar shift will push Easter sales into March.

Better March

March should turn out better than February for retailers, Perkins adds, as tax refunds kick in, the weather warms up and gas prices look to abate.

February's results showed a reduced pool of retailers reporting monthly comps. Top retailers, includingMacy's (M),Target (TGT),Kohl's (KSS) andNordstrom (JWN)stopped reporting monthly comps starting in February.

"Because of the shrinking universe of monthly reporting firms, we have to be more cautious about interpreting the numbers," said Niemira.

Department stores won't be included in the tally or enough of the broad breadth of the industry, he adds.



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 , GPS , LTD , ROST , TJX

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