Retailers Trounce Estimates, Aided by Early Easter

Warm weather, an early Easter and a more confident consumer appear to have boosted retail sales in March, with the vast majority of the retailers who have reported results topping analysts' estimates.

Woman selecting clothes from rail in shop
Lucas Lenci Photo | Riser | Getty Images

In fact, Thomson Reuters same-store sales index hit a record high with an increase of 9.1%, the strongest result since the firm began tracking same-store sales in 2000.

Many retailers not only topped analysts' estimates, but did so by a wide margin. Strong performances came from all sectors of the retail space. Among the strongest performances were department storeKohl's, teen apparel retailer Aeropostale, high-end department store JW Nordstrom , and Limited, the operator of Limited, Bath & Body Works and Victoria's Secret stores.

Retailers were helped by weak comparisons last year, when the group posted a 5 percent decline. However, consumers, encouraged by some positive economic trends, are showing signs that they are coming out of hibernation. Most notably, the employment picture is turning more positive, having shown its fastest rate of job creation in three years.

Retail Sales Analysis

That is a sharp contrast to last year, when consumers were very cautious about their spending amid widespread fear about the economy and massive corporate layoffs.

The more upbeat mood, combined with Easter's arrival on April 4, likely helped get shoppers to the mall to buy spring apparel and other items.

And with retail inventories at lean levels, profit margins should be attractive.

"(Retailers) are managing their businesses better," said Dana Telsey, CEO and chief research officer at Telsey Advisory Group. "We'll have a better flow through of earnings. Sales growth should outpace SG&A growth."

In fact, several retailers raised their earnings forecasts Thursday.

For example, Kohl's raised its earnings guidance after reporting double-digit percent sale growth in March. The company now expects to earn 55 cents to 57 cents a share, up from a prior estimate of 48 cents to 52 cents a share.

Discounter TJX, which said it continues to see its traffic accelerate, also posted a double-digit sales gain and raised its earnings forecast. The company projects its first-quarter earnings will be between 76 cents and 79 cents a share, up from an earlier forecast of 60 cents to 65 cents a share.

Mixed Bag for Teen Retailers

Aeropostale, which said customers were excited by its spring merchandise, raised its first-quarter earnings forecast to 44 cents a share. Previously, Aeropostale expected earnings to be between 39 cents and 40 cents a share.

Still, there have been some misses. Perhaps the most notable shortfall was at Aeropostale's rival, Abercrombie & Fitch , which posted a 5.0 percent increase in March same-store sales. Analysts were expecting the teen retailer to see same-store sales rise 6.6 percent.

JC Penney also fell short of analysts' sales estimates, posting a 5.4 percent increase in same-store sales. Analysts had expected the department store would post a 5.7 percent increase. However, the company still raised its first-quarter earnings forecast by a penny to 22 cents a share.

Investors will be combing through Thursday's results to see if retailers expect the trends to continue. Retail stocks have been outperforming the market and there may be some concerns that the stock prices have gotten ahead of themselves.

Too Soon to Be Giddy?

Patricia Edwards, founder of Storehouse Partners, warns that it may be a bit too soon to get giddy about retail stocks, because the sector has benefited from the shift in Easter and pent-up consumer demand as well as from favorable comparisons. She also warns that consumers will be up against rising interest rates and gasoline prices.

According to Edwards, investors need to pick retail stocks wisely because consumer spending patterns have changed and only the best merchants will be able to thrive once the comparisons become more difficult.

Wall Street Strategies analyst Brian Sozzi notes that same-store sales trends have weakened in the Western U.S., which was the first region to show improvement last summer.

"Whether this is reflective of the renewed downdraft in housing activity (check out existing home sales trends...) is perhaps too soon to state," Sozzi said, in a research note. "However, in many respects retail sales in the West were the first to suggest a consumer pullback was possible following the free spending ways of 2005-2007."

Sozzi's assessment of sales trends are based on comments from both Target and Dillard's as well as a weak U.S. same-store sales increase, excluding gasoline, at Costco, which has 117 stores in California.

A table of the results and expectations, by retailer, follows:

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