Retailers Likely to Report Strong Sales for January

Gift cards, less discounting and the economic rebound should all provide a boost.
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January comparable-store sales are widely expected to be solid, with gift-card exchanges, the improving economy and an historically low amount of merchandise markdowns as the month's primary sales factors.

Same-store sales, or sales at stores open at least a year, are expected to rise 4% to 4.5% in January, said Mike Niemira, chief economist and director of research at the International Council of Shopping Centers, which tracks weekly and monthly sales trends by surveying about 80 retailers. In comparison, same-store sales rose 1.8% in January 2003 and were up 4.2% in December 2003, according to ICSC data.

Niemira cited the upswing in the economy as the broad driver for January results. In addition, "The pull of gift-card redemption is probably a key supporting factor and the cold weather probably also was supporting to the extent that it drove outerwear sales," he said. Several retailers will announce results on Wednesday, with the majority reporting on Thursday.

Gift cards were huge in the 2003 holiday season, especially in December. Their totals, however, only count toward a retailer's top line in the month in which they are redeemed. January is widely expected to reflect that surge.

January's sales could also see a boost from reduced discounting, as consumers began shopping for spring earlier than usual. The first month of the year is traditionally a heavily discounted month when retailers offload leftover holiday merchandise to make way for the spring arrivals.

As a result, First Albany analyst Gabrielle Kivitz expects that January same-store sales could be better than expected. "Strong full-price selling of spring product would be most important, as it would signal a change in the mind-set of the consumer after several years," she wrote in a Feb. 2 research note. "Willingness to pay full price for newness after a period of conservative spending and a value bias would bode well for retail sales and margins in 2004."

Retailers that have better-than-expected comps as well as margin improvement and strong spring sales could have EPS upside in the fourth quarter, Kivitz said. Above-plan results are seen at specialty retailers

Aeropostale

(ARO)

,

Abercrombie & Fitch

(ANF) - Get Report

,

Hot Topic

(HOTT)

and

Pacific Sunwear

(PSUN)

, she said.

Regarding gift cards, both Aeropostale and Pacific Sunwear said customers tended to redeem cards in late December. When doing so, however, they did not use the full face value, the analyst said. As a result, Kivitz suspects that those customers came back in January and possibly spent more than the leftover amount on their card.

The analyst sees an 11% to 13% rise in comps at Aeropostale, compared to management's guidance for a midsingle-digit increase. At Abercrombie & Fitch, comps are expected to be down 5% to 7%, and Hot Topic same-store sales are seen up 6% to 8%. Pacific Sunwear's comps are seen rising 7% to 9%. (First Albany does investment banking for the retailers it covers.)

Meanwhile, in the broadlines/department store sector, J.P. Morgan analyst Shari Schwartzman Eberts foresees comps at the low end of plan. The analyst thinks discount stores should outpace department stores, with discount stores up 5.1% vs. an expected 0.5% increase at the department stores. She forecast dollar stores to have an overall 3.6% increase in comps.

"Standouts to the downside should be few," she wrote in a Feb. 3 research note. "We expect January comps to have minimal EPS impact given a strong holiday season and good inventory control."

Eberts sees

Nordstrom

(JWN) - Get Report

as a big department store winner with same-store sales up 3% to 5%, which is at the high end of the company's positive 2% to 4% guidance. The analyst also expects

Saks

(SKS)

to outperform its peers with a 3% to 5% increase in January comps.

Eberts also predicted that

Costco

(COST) - Get Report

will have solid comps compared to its peers, at positive 8% to 10%. The company's own guidance is for comps to be up 7% to 9%.

BJ's Wholesale Club

(BJ) - Get Report

, however, could look weak compared to its peers, "as it begins to cycle price investments," the analyst said. She expects a rise in comps of 6% to 8%, compared to the company's own guidance of a 7% to 9% increase.

Last, Eberts expects both

Dollar General

(DG) - Get Report

and

Family Dollar Stores

(FDO)

to have same-store sales up 3% to 5%. (J.P. Morgan does investment banking for the retailers listed in this story.)

As for

Wal-Mart

(WMT) - Get Report

, the world's largest retailer by revenue, Prudential Equity Group analyst Wayne Hood expects comps could meet or exceed the company's own plan for a 3% to 5% increase. The company had on-plan sales for the first three weeks of the month, the analyst said.

And Hood said Wal-Mart's main rival,

Target

(TGT) - Get Report

, is also on track to meet its own guidance of positive 4.6% comps in January. The company had an up and down month, the analyst said, but the third week of the month made up for a disappointing second week.

Hood expects to see a 6% increase in the Target division, in line with the company's guidance for positive 5% to 7% comp-store sales. (Prudential Equity Group does investment banking for Target and Wal-Mart.)