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Retailers Rising – TGT, M, KSS, TJX, ARO, LTD


Retailers reporting on February sales today appear to be pointing to a revival in the sector despite the cold and snowy weather that hit the Atlantic coast from Maine to Georgia. Same-store sales at 28 stores tracked by Thomson Reuters are expected to post a 2.9% gain, compared with a 4.7% drop last year.

Target (TGT) sales rose 2.4%, more than double estimated gains, and Macy’s (M) sales rose 3.7%, compared with an estimated loss of 1.4%. Other gainers include Kohl’s (KSS), TJX Companies (TJX) jumped 10%, Aeropostale (ARO) rose 7%, and Limited Brands (LTD) gained 10%.

Stores reported more traffic, and while company management attributed the improved sales to demand for the hot new merchandise, analysts point to pent-up demand as the main driver for the gains. Will the stores be able to keep up the momentum they gathered in February?

The most important factor will be their ability to drive sales, market share, and traffic. Most retailers have wrung out all the costs they’re likely to be able to, and the inventory control measures they’ve put in place have also worked about as much magic as they can. Now, it’s put up or shut up time.

Consumers haven’t been spending much money for nearly two years, and it’s dangerous to draw too rosy a conclusion from just one month’s data. There’s still an enormous unemployment problem in the U.S. that is not predicted to improve much for at least a year or even several years.

Consumer credit hasn’t shaken loose, and the days of using a house as an ATM are behind us, at least for a few years. Wages are flat and Social Security retirement benefits, which are tied to inflation, are also flat.

Prices remain low because inflation in 2009 was actually negative. Deflation is never a good sign, but the last two months of 2009 and January 2010 saw inflation in the 2%-3% annual range, which is another positive.

In the months ahead, consumers are likely to be bludgeoned with ads and lower prices to entice them into stores. Those who believe they have a reasonably safe job are likely to respond, but it is very likely that they will continue to be very price conscious, which will squeeze margins.

For the rest of 2010 the key to retail success will be market share. The price retailers have to pay is lower margins.

If the U.S. economy continues to improve, the price will be worth it. Right now, consumer confidence appears to be on the rise. Sustaining that new confidence level will be tricky though.

Tell U.S. what you think here.

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