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Retail sales heat up, drive stocks higher

A late Easter and mild spring temperatures are credited for retailers' best showing in two years.

By ASSOCIATED PRESS
Published May 5, 2006

NEW YORK - Consumers, seemingly unfazed by rising gasoline prices, shopped enthusiastically during April, giving retailers their best performance in two years.

Warmer weather, a late Easter and hot fashion trends helped entice shoppers, but merchants remained wary about the possibility that expensive gas and higher interest rates could still curb consumers' appetites.

The retail news helped the Dow Jones industrial average gain 38.58, or 0.34 percent, to 11,438.86, its best close since reaching 11,489.59 on Jan. 19, 2000. The Dow is 284 points, or 2.4 percent, from an all-time high of 11,722.98 from early January 2000.

Broader stock indicators advanced. The Standard & Poor's 500 index rose 4.40, or 0.34 percent, to 1,312.25, and the Nasdaq composite index surged 19.93, or 0.87 percent, to 2,323.90.

As major retailers reported sales figures Thursday, many including Wal-Mart Stores Inc., Target Corp., Nordstrom Inc., Abercrombie & Fitch Co. and Limited Brands Inc. had better-than-expected results. Even Gap Inc., which has disappointed Wall Street for months, posted a smaller sales decline than analysts expected.

Solid sales helped J.C. Penney Co. Inc. raise its first-quarter profit outlook, boding well for other merchants as they prepare to report earnings over the next few weeks.

Overall, "it looks excellent," said Jharonne Martis, an analyst at Thomson Financial. She noted that although there are worries about the strength of sales in the next few months, "consumers beat expectations. It seems like all stores got traffic."

Martis noted that a positive sign was the robust results from teen retailers, indicating that younger consumers have a lot of discretionary spending despite high gasoline prices, she said.

A big factor boosting sales last month was a late Easter, which fell on April 16 and was three weeks later than last year. Because of the calendar shift, retailers and analysts look at the combined spring selling period of March and April, which was up a solid 4.3 percent, better than the 3.1 percent gain in the year-ago period.

Unseasonably warm weather in April also helped spur sales of dresses, cropped pants and other spring fashions. According to NOAA's National Climatic Center, last month averaged 56.1 degrees, the warmest April since records were kept in 1895.

Despite the upbeat reports, retailers, particularly those that cater to low-income consumers, remain anxious. Gas now hovers around $3 per gallon, and is expected to stay high during the summer.

Merchants are wondering when the pressure from higher interest rates, which makes financing debt more expensive, as well as higher gas prices will force shoppers to finally cut back. A cooling housing market has also slowed the trend of people taking spendable cash out of their appreciated homes through refinancing.

The good news is that consumers are enjoying solid gains in the job market, which has offset the pain at the gasoline pump, analysts said.

The Labor Department reported Thursday that new claims for unemployment benefits rose last week by 5,000 to 322,000. Even with the rise, the level of claims still pointed to a good job-market climate. Seasonable adjustment difficulties related to spring recesses may have distorted last week's number, a department analyst said.

Wal-Mart reported a 6.8 percent gain in same-store sales. That was better than the 5.7 percent estimate from analysts surveyed by Thomson Financial and far outpaced the slim 1.4 percent gain posted in March.

Rival Target posted a 10.4 percent gain in same-store sales, better than the 10 percent estimate.

Business at teen retailers rebounded in April after lukewarm results earlier this year.

Abercrombie & Fitch reported a 17 percent gain in same-store sales, well exceeding the 7.9 percent estimate.

Pacific Sunwear of California Inc. had a 14 percent gain in same-store sales, exceeding the 5.2 percent estimate from analysts.

[Last modified May 5, 2006, 06:05:59]