Mother Nature wreaked havoc on retailers in January as frigid
temperatures in much of the U.S. kept mall traffic weak and
dampened spending, leading to sluggish sales reports for most
chains Thursday even as they touted aggressive discounts.
But overall sales still came in ahead of the forecasts, led by
a strong showing fromCostco Wholesale (
) andL Brands (
Sales at stores open at least a year rose 3.3% vs. a year
earlier, according to Ken Perkins, president of Retail
Analysts had predicted a modest 2.2% increase. "The month was
not as bad as feared," said Perkins. "But it was still a sluggish
month for most retailers."
Retailers faced a number of head winds in January.
"Retailers were very promotional for the month and mall
traffic was very sluggish," said Perkins. "Weather was a major
factor for many in the Midwest and Northeast."
The cold weather, he adds, led to a very "slow start" to the
early spring selling season, with many consumers "cooped up" and
Another head wind was "negligible" personal income gains for
mid- and lower-income consumers, which kept a "lid on spending,"
Perkins said. Also, there was a "dearth" of fashion during the
Michael Niemira, chief economist for the International Council
of Shopping Centers, also calculates January same-store sales
rose 3.3% vs. a year earlier, which he calls a "moderate"
Weather Dampens Demand
Overall, the month was "OK" and a repeat of December's showing
of a 3.4% comps rise, he said.
"It's overwhelmingly a weather story on top of a low-volume
month," said Niemira. "Therefore, I don't read too much into the
numbers for the long haul. It certainly had an impact on the
month and the quarter. But it doesn't mean there's a fundamental
As the months go by there's often a "bigger rebound from the
exceedingly weak demand we're seeing because of the weather," he
added. "We may have to wait until March, but as long as the
economy continues to perform well, which is our expectation, I
would tend to look beyond the weather."
There were some bright spots during the month. Upside
surprises from warehouse club giant Costco, Victoria's Secret's
parent L Brands, and drugstore chainsWalgreen (
) andRite Aid (
) accounted for much of the beat, Perkins says.
Also on the bright side, giant apparel retailerGap (
) posted January comps well ahead of views.
Costco came in with a solid 4% comp for the total company,
ahead of forecasts for a 3.4% gain. Its U.S. same-store sales,
excluding the negative impact of gasoline prices, climbed 5%.
L Brands posted a 9% rise in comps vs. a year earlier, sailing
past forecasts for a 0.5% gain.
L Brands had to discount "quite a bit" during the month, as
did most apparel retailers, said Perkins. But, he adds, it still
came in with a strong comp gain even as it faced a tough
comparison with last January's 9% increase in same-store
"That's impressive, even though they had to take markdowns,"
L Brands also raised Q4 earnings guidance, "something
virtually no retailers have done this quarter," Perkins said.
Gap Guides Up
Gap posted a 1% increase in January same-store sales late
Thursday, smashing views for a 1.1% decline.
Gap also announced Q4 earnings guidance in the range of 65
cents to 66 cents a share. That would represent full-year fiscal
2013 earnings growth in the mid- to high teens, on top of a 49%
full-year earnings increase in fiscal 2012.
But outside of L Brands and Gap, the rest of the
apparel-related space came in below views.
Even regional discounterStein Mart (SMRT), which had been a
"pretty strong" performer of late, disappointed with a -0.7%
decline vs. forecasts for a 1.3% gain, Perkins says.
In the struggling teen space, action sports retailerZumiez
(ZUMZ) posted a 7.6% decline, missing views for a 3.3% drop.
Niemira says that based on the data out Thursday, consumer
spending continues to be "very cautious." And the sales pace
remained "uneven" by some of the major segments.
"Different retailers are performing well and some are
struggling," Niemira said. "By and large it's a moderate kind of
environment for sales gains. Until we get something that forces
us to break out of that pattern we will get a moderate
improvement in retail sales."
Now, he adds, it's a "market-share game, where those that are
doing well are doing it at the expense of others." He sees
February same-store sales increasing between 3% and 3.5%,
depending on weather conditions.
What Will Spring Bring?
Perkins expects the spring selling season is going to be
difficult for many retailers.
"Improved fashion should help," he said. "But slow economic
growth and no wage growth will prevent many retailers from seeing
significant sales gains. And this should result in a continued
promotional environment for retailers with continued pressure on
Wall Street is looking for Q4 earnings to fall 4.4%, which
would be the worst performance since 2009, Perkins says. Q4
same-store sales growth is expected to rise just 0.5%.
But analysts see earnings for Q1, which typically runs from
February through April, to be up 11.8% from a year earlier, says
That's due in part to relatively easy comparisons with Q1
2013, says Perkins, when earnings were up only 4.5%.
Also, he adds, "there's a significant amount of optimism for a
rebound" in earnings for department stores in particular, which
saw a 44% drop in earnings growth in 2013.
Separately, the National Retail Federation released an upbeat
2014 economic forecast Thursday. The industry trade group
forecasts retail industry sales (which exclude automobiles, gas
stations, and restaurants) will increase 4.1%, up from the
preliminary 3.7% growth seen in 2013. It also announced Thursday
it expects online sales in 2014 to grow between 9% and 12%.
"Measured improvements in economic growth combined with
positive expectations for continued consumer spending will put
the retail industry in a relatively good place in 2014," said CEO
Matthew Shay in a statement. "Though head winds in the form of
the looming debt-ceiling debates, increased health care costs,
and regulatory concerns still pose risks for both consumers and
retailers, we are cautiously optimistic and hopeful that the
economic tides will change in 2014."
The NRF predicts economic growth will be above its long-term
historical average. Early estimates for real GDP growth could
fall between 2.6% and 3%, "a noticeable improvement from the
estimated 1.9% rate for 2013 and the fastest pace in the past
It forecasts a continued modest recovery in the labor market,
averaging approximately 185,000 jobs per month, helping decrease
unemployment to near 6.5% or lower by the end of 2014.
The housing sector is expected to continue to improve in 2014,
and stronger household and business confidence should spur more
consumer spending overall.