Sector Snap: Clothing Retailers

Analyst says retail sales likely to be slow in beginning of the year

Associated Press

NEW YORK (AP) -- Retail sales are likely to be slow in the beginning of the year, an analyst said Tuesday, since shoppers will probably be paying down credit card debt, adjusting to payroll tax hikes and waiting for warmer weather and more promotions before they buy.

The start of a new year can be a challenging time for retailers, following the rush of sales typically seen during the holiday season. Stores are not as likely to have as many promotions — or deep discounts — for shoppers after the critical November-through-December period. And many consumers may impose a spending freeze on themselves after spending heavily on gifts.

Analyst Richard Jaffe of Stifel Nicolaus said in a client note that sales will probably pick up in the last weeks of March, leading up to Easter.

While spring merchandise is already in many stores, Jaffe says that February's cold weather likely kept shoppers from buying clothes for warmer weather.

Payroll tax increases may also be giving consumers' pause, particularly lower-income individuals, Jaffe said. The analyst added that delays in tax refunds due to changes that were part of the fiscal cliff negotiations may also keep consumers from spending.

Jaffe said that certain retailers are more prepared than others to contend with these conditions. "Retailers must maintain the operating disciplines of lean inventory, tight expense control and cost-effective promotions to help drive sales," he wrote.

Some of the retailers Jaffe likes include American Eagle Outfitters Inc., Express Inc., Nordstrom Inc., TJX Cos. and Urban Outfitters Inc. He rates all of them "Buy."

Shares of American Eagle rose 5 cents to $20.37 in midday trading, while Express gained 12 cents to $17.77. Nordstrom fell 3 cents to $52.67, TJX rose 2 cents to $43.61 and Urban Outfitters fell 5 cents to $39.01.

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