Top retailers posted stronger-than-expected sales gains for February, a show of strength that could dissipate this spring as rising gasoline and food prices take their toll.
The 25 retailers in the Thomson Reuters same-store sales index reported a rise of 4.2 percent in sales at stores open at least a year, beating forecasts of a 3.6 percent increase.
Luxury retailer Saks Inc and Victoria's Secret parent Limited Brands Inc had among the biggest gains, while discounter Target Corp and Gap Inc missed analysts' forecasts.
Store chains got a boost from January snowstorms that delayed some shopping, and consumer confidence has risen. But retailers face major challenges, analysts warned.
Higher fuel prices will lead shoppers to consolidate trips, meaning fewer impulse purchases, especially by lower-income shoppers.
When you're pumping in $50 to $75 to fill up your car, or more depending on what you drive, it's a major hit for a lot of consumers, said Retail Metrics President Ken Perkins.
Sahana Paramesh, who was shopping Wednesday afternoon at a Ross Stores Inc location in San Francisco, said higher gas prices were making her more careful with her spending.
I used to buy at dressbarn -- they had cute little dresses for 30 or 40 dollars -- but I just found dresses here for half the price, she said. I probably wouldn't have done that two years ago.
Oil prices settled at their highest level since August 2008 on Wednesday.
Shoppers are also under growing pressure from food prices. Supermarket chain Kroger Co said on Thursday that food stamp use remains at peak levels.
As the year progresses, do you start to see more severe concern and reaction in discretionary purchases as consumers devote more dollars to food and energy? said International Council of Shopping Centers chief economist Michael Niemira.
The ICSC expects same-store sales to be flat to up 2 percent in March, with larger gains in April because of Easter's timing.
Several retailers said they were expecting sales declines in March because Easter is on April 24, three weeks later than last year. The weeks leading up to the holiday are when many shoppers start buying clothing for warmer weather.
Investor reaction to the strong February results was muted. For retailers, the month is the smallest of the year, accounting for only about 7 percent of annual sales.
The S&P Retail Index <.RLX> was up 1.1 percent, while the S&P 500 <.SPX> rose 1.5 percent as U.S. jobless claims hit a 2 1/2 year low.
STILL OUT FOR A BARGAIN
Nordstrom Inc and Neiman Marcus also reported large gains, helped by Valentine's Day sales.
When you have higher gasoline prices, that's going to take a bite of that lower-end customer more so than Nordstrom, said Channing Smith, a managing director with Capital Advisors Inc, which invests in retail stocks.
J.C. Penney Co Inc's sales were strong, but its shoppers are particularly price-conscious, and the department store operator's shares fell 0.7 percent. Saks stock rose 5.7 percent, while Nordstrom gained 1.6 percent.
A number of other chains catering to bargain hunters, such Kohl's Corp , as well as low-priced retailers TJX Cos Inc and Ross Stores, which sell designer brands, reported strong results.
Limited Brands' same-store sales rose 12 percent, while Wet Seal reported an unexpected increase.
Gap Inc was one of the biggest losers, missing estimates as it continued to struggle with a tepid response to its merchandise, both domestically and abroad.
Teen apparel chains Abercrombie & Fitch , Aeropostale , and American Eagle Outfitters stopped reporting monthly sales as of March. The world's largest retailer, Wal-Mart Stores Inc , has not been included since 2009. (Additional reporting by Alexandria Sage in San Francisco, Jessica Wohl in Chicago, Dhanya Skariachan and Helen Chernikoff in New York, Ben Klayman in Detroit, and Nivedita Bhattacharjee in Bangalore. Editing by Lisa Von Ahn)