Retailer Sales Heat Up Amid Warmer Weather

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Retailers hit a home run with shoppers in April as warmer weather, a later Easter and a brighter job picture helped fuel the biggest monthly sales gain since September 2011.

The strong showing, detailed in a report on Thursday, could signal a better retail spending climate as stores head into the summer months.

April sales at stores open a least a year were up 6.2% from a year earlier, according to Ken Perkins, president of Retail Metrics, which issued the report.


Retailers sailed past analysts' forecasts for a 3.9% gain.

Across the board, retail companies beat expectations, withCostco Wholesale ( COST ),L Brands ( LB ),Stein Mart ( SMRT ),Cato Corp. ( CATO ),Gap ( GPS ) andZumiez (ZUMZ) all handily above views.

Both L Brands, the parent of Victoria's Secret, and specialty women's apparel retailer Cato raised first-quarter earnings guidance Thursday.

"This was an encouraging sign for retailers," said Perkins. "They came in well ahead of what were relatively low expectations. Two retailers guided earnings higher, which is a bit of a novelty, given how many negative preannouncements there were for the first quarter of this year."

Spring Selling Freshens Up

The strong showing follows a modest 2.8% comp gain in March. Combined March-April same-store sales are up a "solid" 4.7% from a year earlier, says Perkins.

The April results were driven by warmer weather in the first half of the month through Easter, which Perkins says helped fuel holiday-related sales and unleash pent-up demand for spring merchandise.

Retailers also aggressively promoted many deals, particularly in apparel, helping drive traffic.

An improved employment picture the past three months also helped recharge spending. Unemployment is down to 6.3%.

"Hopefully this improving labor market coupled with better weather will drive a strong May, and we will feel much more comfortable about the consumer having come back," said Perkins.

Retailers head into first-quarter earnings season the next three weeks. Perkins says with all the negative preannouncements, analysts' estimates for the quarter have come down sharply since the start of the year.

"With this better April, a number of retailers could surprise and beat these lower estimates," he said.

Michael Niemira, chief economist for the International Council of Shopping Centers, calculates a 6.2% rise in April same-store sales vs. a year earlier.

"The results were surprisingly good and reflected more than a calendar lift from a later Easter," he said. "It also captured some pent-up demand that was being unleashed by consumers that reinforced the month's performance."

Cato posted the largest April same-store sales gain, with an 18% increase, ahead of views for a 4% rise. It was Cato's biggest monthly gain since March 2010.

Big apparel retailer Gap posted a hefty 9% rise in April same-store sales late Thursday, sailing past forecasts for a 0.5% decline. The jump sent its shares higher in after-hours trading. The strong showing was fueled by an 18% rise in same-store sales at its Old Navy chain.

L Brands saw an 8% comp-store sales gain, handily beating analysts' forecasts for a 4% increase. Action sports retailer Zumiez came in with a healthy 8.2% same-store sales gain for last month vs. forecasts for a 1% increase.

Costco saw a healthy 5% same-store sales gain, despite being closed on Easter Sunday and having one less selling day.

It topped views for a 4.2% rise, and international business was even stronger at a 7% increase. For the combined March/April period, Costco reported a solid 5% increase as well.

Off-price retailer Stein Mart rang up an impressive 8.9% gain in same-store sales, ahead of views for a 3% increase.

Perkins calls the month's showing "one of the first encouraging developments" all year for what has been a very "tough year for retailers."

"When you look in totality how everyone did, I think it's an encouraging sign as we head into May," he added.

Perkins says April's reading "suggests that consumer spending might be on the mend. Big-ticket purchases have run pretty strong over the last few months. It looks to have translated into some pent-up demand and a strong April."

Still, he said, "we need to see a carry-through into May with solid Mother's Day and Memorial Day sales to feel comfortable that a trend is in place and the consumer is feeling better."

Niemira added that April's results make him "more optimistic." He says we're likely to see a "firming" in retail spending.

"I don't think all of a sudden we're out of the woods," Niemira said. "Demand still will be choppy. The consumer still shops in spurts, driven by holidays, promotions and other events."

A Merry Month?

Niemira forecasts that May same-store sales will rise 3% to 3.5% from a year earlier.

"It isn't a bad performance," he said. "But it certainly pales in comparison to the April reading."

He added: "In order to be reassured that the pickup we're currently seeing can be sustained, what we will need to see is some other economic metrics continue to improve, whether it's income growth or employment growth."

Niemira said he would also like to see a "healthier teen market" in terms of employment and spending. Perkins added that his sense is same-store sales will return to a "more normal pattern" in May, with an increase of 2.5% to 3.5% from a year earlier.



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 , LB , SMRT , CATO , GPS

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