U.S. Retail Sales Chilled

By Evelyn M. Rusli

Many of America's major retailers reported disappointing February sales, as shoppers apparently stayed away because of cold temperatures and worries about the values of their homes.

The world's largest discount retailer, Wal-Mart Stores, said same-store sales climbed 0.9% in February, falling short of the company's expectations of 1% to 2% and Wall Street's 1.5% estimate. Same-store sales is the industry's benchmark yardstick to gauge a merchant's retail health, looking at revenue from sites open at least one year. The company said poor performance in its home, apparel and hardline products hurt sales. Weak performance is expected through the spring.

Wal-Mart shareholders nonetheless received some good news on Thursday when the board approved a 31% hike in the annual dividend for the 2008 fiscal year, which will shift $3.6 billion to shareholders. For the year ending Jan. 31, 2008, the annual dividend will increase by 21 cents to 88 cents per share.

Wal-Mart shares were down .10%, or 5 cents per share, to $47.88, at the close of trading on Thursday.

Of the 51 retailers that have reported February same-store sales, 31 missed analyst expectations and only 19 beat the Street, according to Thomson Analytics. Increased snowfall and chilly February temperatures, some of the coldest in almost two decades, made spring lines unappealing to consumers. In general, February is also a very difficult month in the retail industry because it is considered a transitional period when winter clothes is cleared out and the stores begin to introduce spring lines. "In February, inventory levels are generally low and tend to build up at the end of the month, when stores begin to stock their full spring lines" Jane Hali, Director of Retail and Merchandise Consulting for the Coleman Resaerch Group, said. Before joining the Coleman Group, Hali spent 25 years in the retail industry and was an executive for Macy's. She said many major retailers, with the exception of a handful of high-end stores, posted similar sales last February. A better test for retailers will be in March, when stores really start pushing their entire spring lines, Hali said.

Along with Wal-Mart, major retailers such as Costco Wholesale, BJ's Wholesale Club, Gap, Limited Brands and Federated Department Stores recorded disappointing sales, raising concern that American economic growth is slowing.

Costco reported 4% growth in February same-store sales on Thursday, below analysts' expectations of 5%. The chain also said it had a 16% fall in second-quarter profit in part because of charges for stock-options-backdating issues. One of Costco's major competitors, BJ's Wholesale Club, reported a 77% fall in last quarter's earnings on Wednesday, after costs associated with store closings offset a 13% rise in revenue.

Costco shares fell 3.3%, or $1.86 cents per share, to $54.26 while BJ's Wholesale Club shares edged up 1.55%, or 49 cents per share, to $32.20 at the close of trading.

Specialty store conglomerate, Limited Brands, which owns Victoria's Secret and Bath & Body Works, said February sales gained 3%, below Wall Street's 4% expectation.

While many low-end retailers blamed poor weather and economic worries for dull sales figures, high-end department stores continued to post impressive gains and many surpassed analyst expectations. On Wednesday, Saks said same-store sales growth ballooned 24.7% in February. For the fourth quarter ending Feb.23, Saks' earnings grew to $21.5 million, effectively reversing the $2.2 million loss they reported for last year's period.

On Thursday, Nordstrom also reported a robust sales growth for February, with same-store sales surging 9.1%-- far exceeding the Street's expectation of 5.7% growth.

Saks shares ran up .61% or 12 cents per share, to $19.94 and Nordstrom spiked 4.48% , or $2.26 per share, to 52.68 at the end of trading on Thursday.

There was at least one bright spot in the low-end retailer landscape: Wal-Mart's rival Target beat expectations with a 5.7% same-store sales growth, edging out analysts' 5.1% forecast. At the close of trading, Target was up 1.8%, or 1.09 cents per share to $61.69.

Beyond the clothing retail landscape, there were positive signs for consumer health. Global same-store sales for fast-food giant McDonald's spiked 5.7% in February, the company said on Thursday.

The home of the Golden Arches solidly exceeded analysts' expectations, which hovered around 3% growth. Performance was strengthened by impressive gains in its Asian stores and expanded menu options. The United States was one of McDonald's weaker-performing markets, but American stores saw sales rise 3.1% off the popularity of breakfast and late-night menus and the launch of grilled and honey-mustard Snack Wraps.

In Europe, seasonal menus that offered unique options bolstered same-store sales in France and Germany. And in the Asia, Middle East and Africa block, sales growth jumped 12.3% in February, with Japan and China sales leading the pack. The company said McDonald's strong presence in Asia reflected robust Chinese New Year sales "and positive consumer response to the market's branded affordability and convenience strategies."

McDonald's shares were up 1.25%, 54 cents per share, to $43.64. Goldman Sachs raised its price target to $48 from $45.