Retail Sales Show Signs of Life Article

By ANN ZIMMERMAN Americans finally started spending again in February -- largely at discounters such as Wal-Mart Stores Inc. -- leading to the first monthly gain in retail-industry sales since September. Wal-Mart stood above other retailers, posting its best sales performance in nine months. Sales at stores open a year rose 5.1%, the company said, twice the rate that analysts had expected, and helped by strong demand for electronics. The world's largest retailer delivered a note of confidence by raising its annual dividend 15%. Getty Images While February same-store sales at stores like Wal-Mart, B.J.'s Wholesale Club and Aéropostale posted gains, upscale chains like Neiman Marcus posted same-store sales declines of 21% or more. Shoppers are spending more on groceries, countertop appliances and cookware as they cut back on trips to restaurants, say retailers. Food sales, which account for about 40% of Wal-Mart's U.S. revenue, also contributed to better than expected results at membership clubs and other discount chains. Luxury retailers, midpriced department stores and clothing chains are still struggling to attract shoppers. Upscale chains Saks Inc. and Neiman Marcus Group Inc. posted same-store sales declines of 21% or more. But in many cases sales were down less than analysts had expected. Analysts said better February weather helped spur spring apparel sales and raised retailers' hopes that their troubled business is starting to stabilize. Lower gasoline prices are helping get Americans out of the house and putting more cash in their pockets. Wal-Mart credited the drop with increasing the frequency of customer visits at its stores. With gasoline selling for about $1.92 a gallon last month, consumers had $14 billion more to spend elsewhere than they did a year ago, according to the National Retail Federation. Moody's Economy.com estimates that if oil stays below $50 a barrel for the year, America's overall energy costs will be $250 billion less than last year. Wal-Mart's sheer size helped push industry sales up 0.7% at stores open at least a year, according to a Retail Metrics Index of 33 retailers. Other discounters also reported sharp gains, including B.J.'s Wholesale Club Inc., which posted an 11.5% same-store sales gain, and Costco Wholesale Corp., which reported sales climbed 4%. Both figures exclude gasoline sales. Retailers' February Sortable Chart: From Abercrombie to ZumiezWithout the push from Wal-Mart, same-store sales fell 4.1%, an anemic showing but still better than January's 5.6% drop, said Retail Metrics. Its index doesn't include such retailers as restaurants, grocery chains or auto dealers. But it is closely followed as a proxy for consumer spending overall. One month doesn't make a trend, and the economic news remains gloomy. Growing joblessness and difficulties in getting consumer credit continue to weigh on the economy. Consumer confidence also continues at record lows. Analysts caution the February results were compared with weak sales a year ago, when the recession first began. Retailers aren't ready to proclaim a budding upturn, either. Midpriced department-store chain Kohl's Inc. said it is paring inventory despite exceeding its sales expectations for February. Even so, "it seems that we are starting to see less negative trends," said Bob Drbul, a retail analyst and managing director at Barclays Capital. Stores have managed to cut their inventories to levels more in line with their sales, he said, and department stores have struck a better balance between clearance and full-priced merchandise. There were other positive notes to the month as well, especially among the discounters. Family Dollar Stores Inc. beat analyst estimates with same-store sales gains of 6.4% for the quarter ended Feb. 28. A double-digit sales increase in food and cleaning supplies accounted for much of the increase, but analysts also attribute the gains to lower gasoline prices giving shoppers more buying power and the company's wider acceptance of electronic food stamps. The Matthews, N.C., retailer, which reports its earnings April 8, raised profit estimates to between 59 cents to 61 cents a share, from 48 cents to 52 cents. Wal-Mart for the first time pointed to improved results in several discretionary-product categories. It raised its annual dividend to $1.09 a share after notching its strongest same-store gains since June, when government rebate checks helped boost results. It was the ninth consecutive year of dividend increases. Its shares rose $1.26, to $49.75 in 4 p.m. trading on the New York Stock Exchange. Wal-Mart posted sales gains in home products, including ready-to-assemble furniture to bedding, which has been a hard sell elsewhere. It also saw increased sales of products such as motor oil, and car batteries and paint. Its U.S. discount stores open at least a year posted a 5% sales increase while Sam's Club sales jumped 5.9%. "We believe falling gas prices significantly boosted household disposable income in February and therefore allowed for both more trips and more spending towards discretionary categories," Vice Chairman Eduardo Castro-Wright said in a statement. Troubles remained for Target Corp., which had been consistently lagging its rivals, but the company beat analysts' projections slightly with its 4.1% decline in same-store sales. But Moody's Investors Service on Thursday lowered its ratings outlook on Target to negative from stable, citing the weakness in its stores and credit-card portfolio. Its shares fell 3%, or 85 cents, to $26.31 in 4 p.m. New York Stock Exchange trading. Sales at discount stores overall rose 2.9%, compared with a 1% increase a month ago, according to the Thomson Reuters Index of 31 top retailers. Department-stores sales fell 9%; apparel retailers slid 5.6%, and teen and children's retailers fell 8.1%, less than the double-digit declines they racked up in January. Department-store and luxury chains have been weak performers for some time, and the trend continued in February. Macy's Inc. and Saks posted weaker-than-expected results with drops of 8.5% and 26%, respectively. Saks shares dropped 6%, or 13 cents, to $1.99 while Macy's fell 10%, or 77 cents, to $6.58, both in New York Stock Exchange trading. In contrast, Kohl's Inc. saw same-store sales decline just 1.6%, exceeding the company's expectations, as the company returned to selling more merchandise at regular prices, according to Kohl's Chief Executive Kevin Mansell. Falling retail sales have led to a wave of retailer bankruptcies, many of which have been forced to liquidate. Circuit City Stores Inc. filed for bankruptcy protection late last year hoping to reorganize but will close all its stores by Sunday. On Thursday, the outdoor-equipment store chain Joe's Sports & Outdoors filed for Chapter 11 bankruptcy protection. —Kerry E. Grace contributed to this article. Write to Ann Zimmerman at ann.zimmerman@wsj.com