Last week (week of February 22nd) many retailers shocked the analyst community when companies universally suggested that February’s comp store sales versus last year were trending positively.  This week, many of these retailers followed-up with surprisingly strong top-line numbers. 

How was this possible?  Many of us are hard-wired to believe that snow = top-line weakness versus the prior year.  February 2010 was a heavy snow month. 

CATO suggested on its press release yesterday that February 2010 “benefited from a shift in timing of income tax refunds.”  While CATO is a micro-cap retailer, their monthly press releases are “must-see TV” since they’ll usually provide some insight into the top-line benefits during a particular month that all the others fail to acknowledge.  

Below is a link to a Zero Hedge blog entry that discusses this topic.  Have consumers pulled forward their spending this tax refund season?  We still believe that there has been a material top-line boost in January/February for survivors this year via a lack of liquidation sales versus LY, but the accelerated tax refund thesis sounds plausible as well.

http://www.zerohedge.com/article/do-accelerated-tax-refunds-explain-year-date-consumer-strength-and-record-low-government-tax

Did you know that Whole Foods Market (WFMI – 36.50) offers coupons?  Apparently, not many of their Facebook fans do either.

The natural and organic retailer offers coupons in its in-store value guide The Whole Deal to help its shoppers eat healthier on a budget.  In December 2010, WFMI started offering a selection of printable coupons on its web site at a click of a mouse.

We like to track the Facebook activities and fan base growth for the retail sector.  Most of the 400+ WFMI Facebook fans that responded to its recent posting were unaware of the coupons.

This is one of a kind occasion when we will indulge into coupon clipping!  Finally, shopping at Whole Foods does not have to be a whole paycheck… maybe half paycheck .

Online coupons offered by Whole Foods Market

Yesterday, Coldwater Creek (CWTR – $6.38) delivered disappointing earnings results for Q4 2009.  Sure, the company’s EBIT margin improved approximately +744 Bps versus the prior year.  But, let’s be clear.  CWTR’s business model began to implode in FY 2007… well before most specialty apparel retailers.  The bar was and is LOW!

Interestingly, the stock price is up +18% this morning as management expertly played the “buy time for a turnaround hype” game on the quarterly conference call.  Of course, CWTR has been through this process a few times over the past 3-4 years, so the playbook was close at hand. 

Given the miserable financial performance over the past 3 years, it was almost comical to listen to management describe the potential for a turnaround on the quarterly conference call.  The company’s Chairman and CEO is Dennis Pence and the company’s Chief Merchandising Officer is Georgia Shonk-Simmons.  While Mr. Pence re-assumed the job of CEO in September 2009, the fact is that he and Ms. Shonk-Simmons were both in the mix when the company made its ill fated decision to MATERIALLY increase inventory levels in 2H 2009.  

So, coming off a year in which the company made possibly the dumbest strategic decision in FY 2009 in the entire retail sector, what does the company do this year?  Buckle down and operate in an especially disciplined manner?  Not a chance.  For an encore, management decides to increase its store growth versus previous expectations.  Now, the company is planning on opening 20 new stores in FY 2010.  You’ve gotta be kidding us.

The fact is that CWTR’s Retail Channel loses money if you allocate a reasonable amount of corporate overhead to the division.  See the link for channel profitability scorecard. 

CWTR’s financial bar is so low that Mr. Magoo could deliver improved financial performance in FY 2010.  But, the decision to open 20 stores in FY 2010 ranks right up their with the company’s foolish decision to dramatically increase the inventory investment for Fall 2009 and Spring 2010. 

Chico’s (CHS – $14.23) has gotten a lot of attention recently with its successful turnaround effort in the Missy space.  CWTR is no CHS.  The average store size at CHS is approximately half the average store size at CWTR.  Therein lies the problem.  Someone years ago thought CWTR should build stores that were 2X the size of the typical CHS store.  Who made that strategic mistake?  It looks like the same guy (Mr. Pence) who signed-off on last year’s bloated inventory buy and made this year’s decision to again start building stores.

The bloated store count and store size will provide headwinds for CWTR as it attempts to right the ship.  Sure, they’ll make modest improvement in profitability as the company continues to lap dismal financial performance.  But, we doubt the company will come anywhere near the 8% EBIT margin (nothing to write home about anyway) it enjoyed during its prime.   

February 2010 laps performance a year ago that was generally regarded as having benefited from warmer weather that drove sales of Spring product.  Yet, last week, the big-box retailers that reported Q4 results generally suggested that sales were relatively strong… despite record amounts of snow across the country that historically dampens sales.

Therefore, consensus comp store sales estimates for February 2010 are all over the map.  Even though no one will likely provide updated EPS guidance, Thursday will be an interesting day!

Let’s assume that comp store sales are relatively strong in February 2010.  How could this be?  We’ve yet to hear a logical explanation other than February 2009 was the “credit crisis bottom.”  While possible, let’s explore three issues that may have boosted sales in February 2010 relative to the conventional wisdom. 

*  Liquidation sales a year ago sapped traffic from the remaining big-box retailers (e.g. Linens, Circuit City, Mervyn’s, Gottschalk’s, etc.).  The relative lack of liquidation sales this year has helped the big-box retailers.  If so, many big-box retailers will “hit a wall” in the April/May 2010 timeframe.  If the liquidation thesis holds water, will big-box retailers outperform specialty retailers tomorrow?

*  GPS discussed a topic on its conference call last week that may help explain why sales did not fall off a cliff in February 2010.  Retailers have had a full year of operating with limited inventory and fine tuning their promotional cadence to optimize revenue in this “new normal” environment.  Have they simply fine-tuned their promotional models this year to most effectively drive traffic/sales?

Quote from Sabrina Simmons on the GPS Q4 2009 conference call last week:
“We are lapping a lot of promos we did last year, and we actually learned a lot and we know now which promos are more effective. We plan for those. We bought into them.” 

* Finally, most retailers are using their social media marketing to drive snowbound consumers to web sites.  In addition, consumers have certainly become more accustomed to purchasing from the Internet channel over the past 12-18 months and we’ve seen this in almost all the growth rates of retailers that supply this data.  It’s possible that weather will no longer have the material impact on sales trends that the industry has come to expect (most retailers include Internet sales in their comp store sales calculation). 

At the end of the day, February 2010 sales release Thursday may be the most unpredictable in recent memory.

It’s no secret that brands specifically targeting hip-hop culture have been down-trending for years.  But where is this niche customer shopping today? 

As brands such as Sean John began to offer less embellished or “expressive” fashions, many hip-hop customers found temporary solace with “bling” brands including Affliction and True Religion over the past few years.  But brightly colored and embellished clothing is quickly being traded-out for quieter, preppy fashion.

The inclination towards a preppy aesthetic was largely led by designer logo-intensive brands such as Lacoste and Polo Ralph Lauren.  But we’ve finally seen a shift in the hip-hop customer shopping cleaner, preppy brands across all price-points.  Interestingly, we’ve noticed an influx of African-American shoppers at teen retailers American Eagle and Hollister of late. 

Hip-hop websites even highlight American Eagle, Aeropostale, and Levi’s alongside traditional hip-hop brands, Apple Bottoms, Southpole, and Baby Phat as “most popular” hip hop brands today.

http://www.hiphopclothingonline.info/

Hollister, Aeropostale, and AE are listed as “hip hop” brands today on some web sites