Thanks to an early Easter, larger tax refunds and a relatively healthy economy, analysts believe March's same-store sale reports should be just as impressive as January's and February's results. As a result, broad-based strength in all sector subgroups is expected. Ken Perkins, research analyst at Thomson Financial/First Call, is calling for a 5.7% rise in industrywide same-store sales and thinks there is good potential for an upside surprise. "A number of factors have converged in the retailers' favor that should lead to robust organic top line-growth," says Perkins, whose survey follows 68 major U.S. retailers. Most same-store sales reports will be released Thursday morning. This year, Easter comes one week earlier that last year, pushing holiday-related sales into the March period. Consequently, analysts expect that fact to add 1% to 2% to company results, Perkins said. He also noted that retail bellwethers Wal-Mart ( WMT) and Target ( TGT) each said weekly same-store sales have tracked in line to above plan. Lastly, many retailers have said inventory levels are strong, which has helped limit promotions. First Call's same-store sales index had a 4.2% rise in December, a 6% increase in January and a 7.1% rise in February -- all of which exceeded expectations, Perkins said. Results in March 2003 were unchanged from the prior year, mainly due to the start of the war in Iraq. Mike Niemira, chief economist and director of research at the International Council of Shopping Centers, is expecting an overall 6.5% rise in March's results, which is up from his previous forecast for a 4% to 5% increase. In February, the ICSC's survey showed a 6.7% increase and a 6% increase in January. That compares with a 0.2% decline in March 2003. "Given that the month faced a very easy comparison with last year and got off to a good strong start, the year-over-year pace of sales for March boomed," predicted Niemira. "Indeed, March year-over-year comp-store sales growth is likely to hit a peak for the year."
Niemira noted, however, that sales softened toward the end of March partly because of wet and cool weather in the Northeast and Southwest, which hurt demand for spring items. He also cited "higher gasoline prices, which hurt discretionary spending and may have limited the frequency of shopping." The ICSC surveys 77 retail chain stores. Of specific sectors, the specialty retailers are expected to shine again. "Apparel retailers' spring fashions have been well received by consumers compared with last year," Perkins says. "This coupled with leaner inventories has paved the way for fewer promotions and more full-priced selling." He sees broad-based strength in the March results among men's, women's and teen-apparel retailers. One specialty retailer that analysts will be watching is Gap ( GPS), says Perkins, citing its big 12% increase in February same-store sales. The company has had 17 consecutive months of positive same-store sales and 12 of last 14 months have had upside surprises. March may provide more of the same. Even more impressive than Gap has been Chico's FAS ( CHS), which has had 74 consecutive months of positive same-store sales, and Pacific Sunwear ( PSUN), which has had 22 consecutive months of positive results with 10 of the last 11 months showing double-digit gains. In addition, Limited Brands' ( LTD) announcement on March 23 that it expects same-store sales in the low double digits, vs. a previous forecast of midsingle-digit growth and positive first-quarter earnings preannouncements from Aeropostale ( ARO) and AnnTaylor ( ANN), also have kept Perkins optimistic. Lastly, Perkins is looking for both Abercrombie & Fitch ( ANF) and American Eagle Outfitters ( AEOS) to register positive comps for the third month in a row. Prior to that, both reported negative results for at least seven consecutive months. The analyst thinks that if the two teen retailers do have positive results, it "would lend further credence to the notion that a turn around is indeed under way."
Meanwhile, March's results should lend further proof that sales at department stores are coming back. A year ago, the department stores -- along with the rest of the industry -- were hit hard by the beginning of the war in Iraq, said Niemira. Additionally, because Easter fell in late April, March missed out on most holiday-related purchases. Now, though, "The broad trend is that
department stores are coming back," he said. "For the last few months, it's starting to look that way, but I'm not sure the view is that they have staying power at this point." Bernstein analyst Emme Kozloff expects same-store sales to be up 2% to 4% at Kohl's ( KSS), compared with a 0.4% increase in 2003 and a 6.6% increase in February. Kohl's has generally lagged its peers' recoveries with stubborn inventory issues. And two chains that had the biggest March declines last year also are expected to report positive same-store sales. Morgan Stanley analyst Bruce Missett expects Dillard's ( DDS), which had negative 12% same-store sales last year, to have a 3.5% increase this year; and May Department Stores ( MAY) is expected to have a 4.4% increase this year, Missett said, compared with an 11.4% decrease last March. From an economic standpoint, there has been a general broadening in the demand base of the department store sector, said Neimira. "There is more breadth to it."