“Helped by Springlike Weather, Retail Sales Beat Estimates,” chirps a headline in today’s New York Times.
So by that rationale, un-springlike weather would have caused retail sales to miss their estimates?
I’m always surprised by how often this weak, weather-based business journalism gets out to the masses (the NYT wasn’t the only media outlet to cite this as a reason today) – particularly when referring to retail or auto sales. Does the weather really make that much difference to shopping habits? Seems pretty simplistic and lazy to me.
Sure, nice weather could have helped. But I can’t ever recall anyone telling me they went shopping because the weather was nice. In fact, I’d have thought the opposite is true: that good weather would tempt people to do things outside, not inside. If sales had instead fallen short in February, surely the weather could be blamed for that, too!
Simply put, it’s misleading. So with that said, let’s get to the real story behind the solid sales figures…
The Analysts Shoot… And Miss Badly
Need proof that you should take analysts’ forecasts with a fat helping of salt?
Look no further than their terrible guesswork for February retail sales.
The consensus estimate was for same-store sales (stores open a year or more) to rise by 3.4%. But the actual number raced in at 4.7% among the 18 retailers that reported results last month.
The figure climbed to 6.4% for department, clothing and discount stores, according to Thomson Reuters. And it was the industry’s best performance since June 2011, according to Retail Metrics.
But anyone who thinks the weather played a pivotal part in such results is kidding themselves. Americans face real challenges from rising food and gasoline costs, plus high unemployment – all problems that the weather can’t alleviate.
But discounts can!
It’s All About Sales, Not Sun
February is an important month for retailers.
With the holiday season long gone, it’s traditionally when stores look to clear their existing inventories in order to make room for their spring collections. And they usually do it via sales.
Take Nordstrom (NYSE: JWN), for example. The company’s sales were forecast to rise by 5.6% for the month, compared with February 2011. But it racked up 10.2% growth instead, thanks to a big shoe sale.
And Costco’s (Nasdaq: COST) same-store sales jumped by 8%, as consumers trolled for both in-store discounts, as well as the company’s cheaper gasoline.
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The Gap (NYSE: GPS) posted the biggest surprise of the day. Analysts had expected the company to continue its long trend of disappointing same-store sales results, with another 1.4% drop. But attractive promotions meant it torched the estimate and posted a 4% rise instead. Its Banana Republic brand led the way, with an impressive 12% jump over February 2011, which made a mockery of the 2.2% “forecast.”
But remember, the numbers reported are sales – not profits.
While foot traffic and revenue is welcome, it means little if discounts and other promotions eat into the bottom line. For example, The Limited (NYSE: LTD), which owns Bath & Body Works and Victoria’s Secret, said margins fell, despite an 8% same-store sales rise.
There are other factors to keep in mind, too…
It’s NOT the Weather, Stupid!
While February’s results were impressive, it’s worth noting that some retailers don’t report official monthly sales numbers. This includes heavyweights like Wal-Mart (NYSE: WMT) and JC Penney (NYSE: JCP). So the data is somewhat incomplete.
And quoted in MarketWatch, Craig Johnson of Customer Growth Partners reveals the companies that do report monthly sales figures account for just 7.4% of the $250 billion worth of retail spending each month.
In addition to potential profit erosion, Customer Growth Partners issues a grim statistic. The group says that for every $0.10 rise in gasoline prices, it sucks out $1.4 billion per month from consumer spending. That’s a crucial aspect, given that gas prices continue to rise and consumer spending accounts for about two-thirds of U.S. economic activity.
So the real tale of the tape for retailers will probably come later this spring, as sales wear off and gas prices take a bigger bite out of disposable income.
Bottom line: When it comes to the retail sector, ignore those in the media who regularly attribute sales figures – be they good or bad – to the weather. Macroeconomic trends and analysis of individual retailers themselves are far more important metrics.