Nov. 5 (Bloomberg) -- Myer Holdings Ltd. and David Jones Ltd., Australia’s largest department-store chains, posted higher sales in the first quarter as an improving economy enticed consumers to spend more on clothing and cosmetics.

The gains underscore the readiness of Australia’s shoppers to spend and retailers’ success at luring consumers away from discount stores as government-led stimulus measures begin to wane. Economic growth underpinned by trade with China may sustain confidence, luring shoppers into stores even as the nation’s central bank contemplates whether to raise interest rates for a third time in as many months.

Myer, which sells brands including Levi’s and Espirt, said revenue rose 5.2 percent to A$717.1 million ($650 million) in the three months ended Oct. 24. Second-ranked David Jones, which lures shoppers with designers such as Ralph Lauren and Giorgio Armani, said sales rose 2.2 percent to A$452.1 million.

“They look like they will have a pretty good Christmas and other sectors might find it a bit tougher,” said Grant Saligari, an analyst at Credit Suisse Group AG in Sydney. “The discount department stores benefited a lot from the stimulus payments and they will probably struggle to repeat those performances.”

David Jones shares fell 4.2 percent to A$5.19 at the close of trading in Sydney, paring this year’s gain to 63 percent. Myer stock fell 2.1 percent to A$3.76 and has yet to trade above the A$4.10 investors paid in an initial share sale that raised more than A$2.1 billion last week.

The benchmark S&P/ASX 200 index declined 0.7 percent today and has gained 21 percent this year.

Consumer Sentiment

New Spring and Summer fashion boosted demand for clothing while furniture sales reported a “marked improvement,” Melbourne-based Myer, whose shares began trading Monday, said in a statement today.

Chief Executive Officer Bernie Brookes said the retailer is “on track” to meet its forecast for 3 percent annual sales growth and a 10.7 percent rise in earnings before interest and tax.

Sydney-based David Jones, which is more profitable than its larger rival, said sales for the quarter would have risen 4.5 percent had its Melbourne store not undergone refurbishment. The central business district store is its second-largest by revenue.

The sales results for the quarter provide a more recent snapshot of activity at the nation’s shops and department stores than Bureau of Statistics figures earlier this week showing retail sales unexpectedly dropped in September.

“Each month of Q1 has progressively got better for us,” David Jones Chief Executive Officer Mark McInnes said on a conference call today. “August was minus 0.4 percent, September was plus 1.8, October was plus 4.3 and the first 10 days of November is plus 6.9 so you can see this progressing, rolling improvement in our figures,”

Confidence Stoked

Consumer spending, stoked by more than A$20 billion in cash handouts from the government, helped the economy skirt a recession in the first half of the year.

Higher spending and consumer confidence at the highest level in more than two years were among key reasons central bank governor Glenn Stevens raised borrowing costs by a quarter percentage point this week. He slashed the overnight cash rate target by a record 4.25 percentage points between September, 2008 and April to a half-century low of 3 percent.

Australia’s benchmark index has gained 44 percent since March 6 and the nation’s dollar, known as the Aussie, has risen by more than 30 percent in the past year, making it the best performing currency in the world.

“Strong consumer sentiment and a buoyant share market have supported David Jones sales,” Craig Woolford, an analyst at Citigroup Inc., said in a note to clients today.

Given the nation’s economic performance, the Labor government of Prime Minister Kevin Rudd has said it will gradually withdraw stimulus.

Treasurer Wayne Swan earlier this week said the economy is growing faster than policy makers expected, prompting the government to raise its growth forecast to 1.5 percent for the year ending in June, up from a 0.5 percent contraction predicted in May.

To contact the reporter on this story: Robert Fenner in Melbourne rfenner@bloomberg.net

Last Updated: November 5, 2009 01:02 EST