Luxury Retailers Live Large in February

Nordstrom and Saks posted solid sales gains for the month, while less upscale chains showed weaker growth

February sales at luxury retailers didn't disappoint the market on March 7. But merchants that cater to the less well-heeled didn't fare as well as they battle each other over customers.

Department-store chains have long suffered slow growth and faced tough competition on pricing from discounters like Wal-Mart (WMT) and Target (TGT). But so far Nordstrom (JWN) has managed to stay relatively above the fray by targeting the well-to-do customers that spurn Wal-Mart and its kind for stores that sell more expensive items (see, 2/27/07, "Nordstrom Shares Slip Despite Stronger Profit").

Nordstrom's sales at stores open more than a year rose 9.1% during the month ended March 3. The company had said in late February that its sales would grow by the mid-single digits during the first three months of this year. Investors bid up the stock 5.3% to $53.07 per share in early afternoon trading on the New York Stock Exchange.

"Despite a crowded and highly competitive retail environment, Nordstrom has broken away from the pack by offering exceptional service and 'affordable luxury' goods," Morningstar analyst Kimberly Picciola said in a research note Nov. 11. "We like Nordstrom's positioning and expect continued growth from this retailer as it expands its store base in new and existing markets over the next five years."

Nordstrom isn't the only one. Luxury retailer Saks (SKS) said February sales increased 24.7%. "We have made much progress on understanding our core customer by market and on refining our merchandise assortments in each of our stores," CEO Steve Sadove said in a press release March 7.

Stores that sell to customers on lower economic rungs fared worse. The Cincinnati mid-tier department store chain Federated Department Stores' (FD), which acquired the May Co. in August, 2005, and owns Bloomingdale's as well as Macy's, said its sales at stores open more than a year rose 1.2% during February, compared to the company's earlier forecast for 2%-3% growth.

"Sales in February were impacted by a series of snow and ice storms in the eastern half of the U.S., including those during the important selling days immediately preceding Valentine's Day," CEO Terry J. Lundgren said in a press release March 7. "Aside from the weather, we were pleased with performance of both the new and legacy Macy's stores." Federated is betting that sales in both March and April to increase by 2.5% to 4%. After the news Federated's stock rose 2.5% to $44.88 per share on the NYSE.

J.C. Penney (JCP) sales decreased 0.2% in February, compared with most recent guidance for sales to be down in the low-single digits. The retailer said its results reflect fewer days prior to Valentine's Day, an important holiday for fine jewelry and intimate apparel sales. J.C. Penney was also in the midst of moving its selling floor to spring merchandise. After the news investors bid up the stock nearly 5% to $81.50 per share on the NYSE.

It was a different story for discount retailers Wal-Mart (WMT), which said Mar. 8 that sales at stores open more than a year rose 0.9% during the month ended March 2. The Bentonville (Ark.) retailer's stock price nudged lower by 0.1% to $47.88 per share on the NYSE on Mar. 8.

Some discounters still managed to do just fine. The Minneapolis discount retailer Target (TGT) said sales rose increased 5.7%, in line with company expectations. The stock rose 2.5% to $62.13 per share on the NYSE on Mar. 8.

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