Gift cards, warmer weather boost retail sales

updated 8:57 p.m. ET Feb. 2, 2006

NEW YORK - The nation’s retailers reported better-than-expected sales in January, as shoppers armed with holiday gift cards and lured by mild weather returned to stores and malls in search of clearance and spring merchandise. The shopping surge wasn’t expected to last, however, as consumers face higher interest rates, a cooling housing market and high energy costs in the months ahead.

As merchants reported their results Thursday, winners cut across all categories, including discounters like Wal-Mart Stores Inc. and Target Corp., wholesale club operators such as Costco Wholesale Corp., teen retailers including Abercrombie & Fitch Co. and mid-price and upscale department stores such as Nordstrom Inc. and J.C. Penney Co. Inc.

Even Gap Inc., which has been struggling to find the right fashion formula, turned in a sales performance that pleased Wall Street.

Overall, merchants’ reports provided some encouraging news about fourth-quarter profits, as many stores at least backed their earnings forecasts. Federated Department Stores Inc. raised its earnings outlook as it announced sales in line with analysts’ projections.

“In January, there was a collision of one-time factors working for retailers,” said Michelle Bogan, retail strategist at Kurt Salmon Associates. But she cautioned that “retailers shouldn’t read too much into the numbers now that consumers have gotten their holiday bills and appear to be tightening their wallets.”

The International Council of Shopping Centers-UBS sales tally of 65 retailers posted a 5.1 percent gain, better than its forecast of up to 4 percent. January’s figures also marked the industry’s best performance since June 2005, when the tally rose 5.2 percent. The index is based on same-store sales, or sales at stores open at least a year, considered the best indicator of a retailer’s health.

While January is the least important month of the retail calendar, its significance has grown since 2001 because of the impact of gift cards, said Michael P. Niemira, chief economist for the mall association. Although people buy gift cards in December, the retailers don’t include them in their sales tallies until the cards are redeemed.

The cards do have many advantages for retailers, though, especially the fact that shoppers tend to spend well above the face value of the cards when they redeem them.

Retailers were also helped by warmer-than-usual weather in the Northeast and Midwest, which put consumers in the mood to buy spring clothes and also blunted the effects of high heating costs. Retailers were also helped by modest gains in the year-ago period, when two winter storms dampened business.

Merchants are also reaping the benefits of a steadily improving job market, which helped send consumer confidence last month to its highest level in three and a half years. The Labor Department reported Thursday that the number of Americans filing for unemployment benefits fell to 273,000 last week, a decline of 11,000 from the previous week. The report bodes well for a significant improvement in the labor market.

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