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TJX, Ross Lead Weak April Sales

By: Investor's Business Daily
Posted: 5/9/2013 3:52:00 PM
Referenced Stocks: COST;GPS;LTD;ROST;TJX

Retailers rang up soft April sales gains that slipped below forecasts Thursday as cold and wet weather dampened spring shopping.

Sales at stores open at least a year rose 3% vs. a year ago, says Ken Perkins, president of Retail Metrics.

Analysts forecast a 3.5% gain. Only 50% of retailers beat views, which is below the long-term average of 57%.

"Clearly, the weather was suboptimal for retailers and was a major drag on sales as was economic softness in the first half of the month," said Perkins. "More on the fringe were concerns about sequestration spending cuts and how they were going to impact incomes."

He says the results looked to be particulary weak, given retailers had an extra selling day because of the Easter holiday shift and easy one-year comparisons.

Still, April sales showed a sequential improvement to March, when same-store sales rose 1.4% from a year earlier.

Improvement From March

"April's showing suggests that consumers are hanging in there spending at a modest clip, but they do not have a lot of discretionary dollars at their disposal," said Perkins. "There is more of a 'buy-now, wear-now' purchase-to-need mentality amongst many consumers. As a result, persistently cool temperatures pushed back spring apparel purchases into May if they are made at all."

Perkins says that there was no negative guidance in Thursday's reports for retailers' upcoming first-quarter results, which is "encouraging."

Budget-minded shoppers continued their quest for value in April. Off-price retail operators TJX Cos. ( TJX ) andRoss Stores ( ROST ) led the pack. TJX saw an 8% pop in same-store sales vs. a year ago, sailing past estimates for a 6.8% gain. Ross posted a 7% rise in comps vs. a year earlier, handily besting views for a 5.8% gain.

"Those were very good numbers at the high end of each of their plans," said Perkins. "Given the lousy weather conditions, it was an excellent month for both."

TJX, which operates T.J. Maxx, Marshalls and HomeGoods stores, saw a double-digit increase in its HomeGoods comps amid brisk home furnishings sales, says Perkins.

"Both in April and the first quarter, our consolidated comp sales increases were achieved over strong growth last year," said TJX CEO Carol Meyrowitz in a statement. "Customer traffic drove comp increases at all divisions as consumers responded to our extremely fresh selections of branded spring apparel."

Ross CEO Michael Balmuth was also upbeat about the month. "We are pleased with the above-plan sales and margin gains we achieved for both April and the first quarter, especially considering our very strong prior year comparisons," he said in a statement. "These results were driven by our ongoing ability to deliver compelling bargains to today's value-focused customers."

Ross raised its first-quarter earnings guidance to $1.06 to $1.07 per share vs. its initial guidance of $1.00 to $1.04 per share.

Apparel giantGap ( GPS ) was also a big winner in April. It reported a 7% pop in same-store sales vs. a year earlier, topping views for a 5.6% gain.

Perkins says weak drugstore sales and lower-than expected comps forCostco Wholesale ( COST ) and Victoria's Secret parentL Brands ( LTD ) were the main reasons retailers' April comps were weak.

Costco posted a 4% comp gain vs. a year ago, below views for a 4.9% increase. The giant discounter, which has gas stations at its stores, was hurt by lower gas prices and a stronger dollar. Still, its core comp number, excluding those factors, was a hefty 6% rise vs. a year ago.

L Brands saw a 2% gain in April comps, well below estimates for a 4.8% increase. Perkins says the company's comps were in line with its plan. But analysts' estimates were higher than the company's plan.

The specialty apparel group, which includes Ross Stores and TJX, was the strongest performer with comps up 6.4% vs. a year earlier. Teen clothing chains also had a good month with a 5.7% increase in comps.

Action sports retailerZumiez (ZUMZ) saw a 4.6% gain in April same-store sales vs. a year ago, even as it faced tough comparisons with a 10.1% pop in May 2012 comps.

Michael Niemira, chief economist at the International Council of Shopping Centers, also calculates April same-store sales rose 3% vs. a year earlier.

"The tone was decent as well," he adds. "It wasn't a great performance by any means, but it is the best showing since January."

Some improvement in the underlying economy, including lower gas prices, an improving job market, higher home prices and a strong stock market helped retailers in April, he says.

More Spending

The "confluence"of all these factors, he adds, sets the framework for a little more spending as we move ahead.

He expects May same-store sales to rise between 2% to 3% vs. a year earlier as pent-up demand "triggers" more seasonal spending.

Still, he says there are enough "cross currents" out there that prevent him from saying there will be a major strengthening or weakening in the pace of same-store sales growth.

Perkins says the climate for retailers should improve as we progress into the summer, barring any major meltdowns in Europe or elsewhere.

"The jobs picture looks to be improving, the Federal Reserve is poised to continue its accommodative policies to help lower unemployment, housing is slowly improving, and the stock market is close to record highs," he said. "All of these factors should boost spending over the coming months."

On the financial front, analysts expect first-quarter retail profits to rise 6.9% vs. a year earlier, says Perkins. That estimate, he says, is down from 8.1% on April 1, and 13% on Jan 1. Retail first-quarter profits grew 12.3% last year.