Consumers back in shopping mode

Wal-Mart sales lead a parade of February improvements, with clothing chains and luxury merchants joining.

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By Parija B. Kavilanz, CNNMoney.com senior writer

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NEW YORK (CNNMoney.com) -- A surprising rebound in February sales gave retailers a much-needed respite after a very difficult winter sales season that had pointed convincingly to a pullback in consumer spending.

"It's very interesting that consumers are actually showing some signs of life," said Ken Perkins, president of sales tracking firm Retail Metrics.

Perkins said part of last month's sales strength, which came on the heels of broad-based softness in December and January, was in part because of "pent up demand."

"The sales numbers were just so weak in December and January that you almost had to expect consumers would come back at some point," he said.

Early refund checks from 2007 income tax returns were probably also contributing to consumers wallets, he said.

What's more, Perkins said a strong spring fashion cycle helped lift clothing sales and would continue to do so in the weeks ahead.

"All this has to be very encouraging to retailers. Even Wal-Mart said its discretionary items were selling well," Perkins said. "This is certainly a step in the right direction for the economy."

That's because consumer spending fuels two-thirds of the nation's economy.

"The key is that tone matters," said Michael Niemira, chief retail economist with the International Council of Shopping Centers (ICSC).

"To the extent that the tone of the sales numbers is a little bit better and Wal-Mart beat its forecast, it gives you a better feeling especially since one big problem the economy has been facing is a crisis of confidence," Niemira said.

Downscaling helps Wal-Mart

Wal-Mart Stores, the world's largest retailer, reported February sales that were better than expected due to strength in clothing, grocery and entertainment purchases.

The world's largest retailer said sales at its stores open at least a year, a key measure of retail store performance known as same-store sales, increased 2.6% last month.

Wal-Mart (WMT, Fortune 500) had expected sales last month to be flat to up 2%.

However, the retailer said the sales gains were tempered by sales softness in home-related merchandise, which it partly blamed on the "pullback in the housing market and the economy."

For March, Wal-Mart expects same-store sales to be flat to up 2%.

Wal-Mart's rival Target (TGT, Fortune 500) logged a 0.5% sales increase, beating analysts' forecasts for a 0.2% decrease for the month.

"Wal-Mart and Target's results show that consumers are downscaling," said Perkins. "There's still underlying demand among consumers but they are definitely looking for bargains."

Based on other early same-store sales results from a handful of retail chains, merchants appeared to rebound from a particularly difficult January.

Sales tracker Thomson Financial, which compares monthly results at 43 of the nation's largest retail chains based on analysts' estimates, said more retailers were beating forecasts than missing them.

According to the firm, about 60% of the 37 chains that had reported their same-store sales results topped forecasts, while 40% missed estimates.

Thomson Financial said total sales last month increased 2.2%, a full 1% above its initial forecast for a 1.2% gain.

The biggest surprises came from teen clothing chains Pacific Sunwear, which posted a 6% sales gain last month and Aeropostale which reported a 7% sales gain.

Sales at trendy clothing and accessories seller Buckle (BKE) jumped 24.3% and luxury department store chain Saks (SKS) posted a 3.4% sales gain.

Still, there were some noteworthy misses.

J.C. Penney (JCP, Fortune 500) posted a 6.7% same-store sales drop and warned that March comparable sales were expected to decline in the "low-single digit."

High-end department store chain Nordstrom said its sales fell 5.6%.

Women's clothing chain Chico's FAS suffered a 14.9% sales decline and Limited Brands, owner of Victoria's Secret and Bath & Body Works, said its same-store sales fell 6% in February.

Perkins, who tracks sales at 39 retail chains had expected overall sales to increase 1.2% for the month. However, based on the number of surprises to the upside, he said overall sales could actually come in at 2%.

"Keep in mind that February is still the least significant sales month in the first quarter for retailers," he said. "March and April are more important because of the Easter holiday."

That said, he cautions that retailers should brace for a tough March and April because Easter is coming about as early as it can, on March 23.

Perkins agreed. "Weather could hurt Easter apparel sales if colder temperatures persist this month," he said. To top of page

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