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Retail sales were mixed in the second week of January, as stronger sales at discounters and unseasonably mild weather helped to offset sparse clearance sales and gas prices which have crept up to levels nearly 50% higher than a year ago.

ICSC-Goldman Sachs Chain Store Sales Index

The International Council of Shopping Centers (ICSC) reported that chain store sales for the week ending Jan 16th rose by 2.0% from the prior week on a pickup in discount store business, while sales were up 2.6% from a year ago. It was a low volume week, with milder than usual weather helping to offset lean clearance inventories. Gift-card redemptions will continue to drive sales this month, but gas prices which are 50% higher than last year could eat into discretionary spending. ICSC Research expects January comp-store sales to be flat to up 1%.

Johnson Redbook Retail Sales Index

Redbook Research reported that same-store sales rose 0.9% for the second week of January compared to last year, while month-over-month sales dropped 1.3% relative to December. Sales cooled off somewhat as post-Christmas momentum was missing, but seasonal merchandise continues to sell well. With much leaner inventories than a year ago, retailers have already started to roll out their Valentine’s Day and spring merchandise. However, most plan to be very conservative with inventory planning for the first half of the year until signs of a meaningful turn in the economy.

Retailers will continue to benefit from easier comparisons to a year ago, and we expect to see some relatively strong 4th-quarter earnings reports as companies report over the next month. However, with the majority of cost-cutting and inventory slashing in the rear-view mirror, it will be much tougher for retailers to sustain earnings momentum and gross margin expansion as we head into spring. The next challenge will be to wean shoppers off of the deep discounts they’ve become accustomed to, even in the face of elevated unemployment and weak income gains.

Disclosure: No Positions

Source: Weekly Retail Sales Mixed