Major retailers' comparable sales (for stores open at least a year) were up 4.1% on average during January, according to a tally by Thomson Reuters. That's nearly twice the growth rate forecast by many industry observers, who had cut estimates recently to the 2% range. Just this week, Thomson Reuters had lowered its estimate to 2.7% growth from 2.8%.
The numbers show that shoppers are slowly becoming less cautious about their spending, says Frank Badillo, senior economist at consultancy Kantar Retail. The company's monthly shopper survey shows consumer perceptions are stabilizing, with fewer households feeling less well-off financially in January, and the percentage planning to cut back their spending dropping for the third month in a row.
Most observers had expected the weather would compound the holiday letdown seen in the December sales results, which disappointed retailers when shoppers held back after November's early holiday season sales. Instead, January showed consumers still have spending power, if there is "a call to arms," such as early Black Friday deals in November, said Brian Sozzi, retail analyst at Wall Street Strategies. Bad weather in January also led to a "stock up now mentality," and consumers who did get out to the stores were not just window-shopping, he wrote in a note to investors.
"Browsing was not in the cards. Why waste a trip to the mall or big box center if the next day calls for 20 inches of snow?" he wrote.
The Weather Still Hurt
The weather wasn't completely ignored: Many retailers reported losing anywhere from 1 to 3 percentage points off their comparable-sales growth due to the snowstorms. For example, discounter Costco (COST), which posted a 9% increase in comparable sales, said that growth would have been 1 to 1.5 percentage points higher, while BJ's Wholesale Club (BJ), with a more modest 2.7% growth, said the weather shrank that number by 2.5 percentage points.
At the other end of the spectrum, J.C. Penney (JCP), which reported comparable sales down 1.2%, blamed both the weather and low levels of clearance inventory for its poor sales. But Penney also raised its fourth-quarter earnings forecast to between $1.06 and $1.09 per share, up from a previous estimate of 90 cents to $1. Rival Kohl's (KSS), with sales up only 1.4%, also raised its guidance to between $1.65 and $1.66 for the fourth quarter from $1.62 to $1.66, and $3.64 to $3.65 for the year from $3.61 to $3.65.
Another suffering retailer, Gap (GPS), which posted only 1% comparable sales growth, also raised its earnings guidance to call for $1.85 to $1.86 per share for the year, up from the previous forecast of $1.77 to $1.82. Aeropostale (ARO), which also posted a 1% increase and was down 3% for the full quarter, raised its guidance from a range of 94 cents to 96 cents to a range of 96 cents to 97 cents per share for the quarter.
"Confidence Is Higher"
The January surprise echoes the first-quarter surprise seen in 2010, when retailers had expected a post-holiday drop and instead saw better-than-expected spring sales, notes Laura Gurski, a partner at consultant AT Kearney.
There are pockets of households with growing spending power, and they are shopping, if the retailers can draw them in with offers, she says.
"Potential here is growing, their confidence is higher. They see the deals out there in January. . .and they're going for the value," she says. "They were looking for a better deal."