A late holiday shopping surge helped U.S. retailers beat analysts' sales estimates for December, but industry experts see the momentum fading early in 2010 as consumers return to saving their money.
Retailers from Macy's Inc
We have figured out that we can survive and maybe we can spend a little bit more than we did when we panicked, said Patricia Edwards, founder of wealth management firm Storehouse Partners, referring to late 2008, when shoppers pulled back on spending in the wake of a financial crisis.
But Mr. and Mrs. Middle America have debts to pay off and jobs to find, Edwards added.
A total of 21 retailers out of 30 tracked by Thomson Reuters Data posted better-than-expected sales results for stores open at least a year in December, the most important month in the calendar for the sector.
Retailers overall posted a 2.9 percent increase, exceeding the 2 percent rise analysts were expecting and marking the best performance since a 3.4 percent gain in April 2008, according to Thomson Reuters Data.
Retail watchers said the December performance showed consumers warmed up for the holidays, but cautioned that a full recovery requires a better job market.
U.S. jobless claims rose less than expected last week, suggesting a better tone to the overall labor market. But economists still see unemployment rising to 10.1 percent in December from 10 percent in November.
The International Council of Shopping Centers noted that same-store sales for all of 2009 were the worst on record, down 2 percent. It forecast sales would be flat to up 1 percent in January and only pick up steam later in 2010 for a full-year rise of 3 percent to 3.5 percent, marking the biggest yearly gain since 2006.
As the year progresses, I think you'll see the consumer stepping up their spending, said ICSC chief economist Michael Niemira.
DECEMBER'S GAIN, JANUARY'S PAIN?
Some of December's upside could have come at the expense of January, as shoppers filled stores the day after Christmas to take advantage of the biggest bargains of the season, said Al Ferrara, a partner in BDO Seidman's retail and consumer product practice. December 26 was the second-largest sales day after the day after Thanksgiving, according to ShopperTrak.
KeyBanc analyst Ed Yruma was unwilling to extrapolate December's strong results into a consumer recovery this year.
The consumer is shopping, but they're pretty measured in what they're buying, Yruma said. We're actually relatively cautious on the consumer in the near to medium term.
Macy's posted a 1 percent rise in same-store sales, slightly better than analysts' estimates, and raised its quarterly earnings view. Shares of the department store operator rose 2.3 percent.
TJX Cos Inc
But he sees little impetus for increased consumer spending in the coming months, at least until employment picks up.
It's all about the jobs, he said, adding that sales would have to return to at least 2007 levels for him to call it a turnaround. We would like to see some mid-single-digit comp growth from these guys on a consistent basis.
And when it comes to profit margins, analysts warned that growth might be harder to come by as the year progresses and retailers cycle the inventory reductions and cost cuts enacted over the last year.
IMPROVEMENTS SEEN FOR MOST SECTORS
By sector, the strongest performance in December came from discount chains, which clocked a 3.9 percent sales increase, according to Thomson Reuters Data.
Beyond discounters, the strongest growth came from apparel chains that cater to both adults and teenagers.
Aeropostale said same-store sales in December rose 10.1 percent, blowing past expectations for a gain of 3.1 percent, and raised its outlook for the current quarter.
High-end retailers like Nordstrom, Neiman Marcus Group
We're actually to starting to see the return of the customer who will pay full price for differentiated product, said Brean Murray, Carret & Co analyst Eric Beder.
Retailers that fell short of expectations included Hot Topic Inc
(Additional reporting by Brad Dorfman, Jessica Wohl and Ben Klayman in Chicago; Nicole Maestri in San Francisco and Dhanya Skariachan in New York; Editing by Michele Gershberg and Lisa Von Ahn)