RetailSails

- The Commerce Department said retail sales rose 0.4% in January, below estimates for a 0.7% gain, as auto sales fell a sharp 1.1% from the prior month on heavy promotional activity. However, total sales excluding autos were up 5.5% in January from the year-ago period and rose 0.7% from the prior month, the strongest gain since last March. We are not reading too much into early 2012 results as January and February are typically the lightest-volume months of the year, with retailers focused on clearing inventory, event-driven promotions for Valentine’s Day and Super Bowl and rolling out spring merchandise lines. Year-over-year, this was the 27th straight gain after 14 consecutive months of declines.

- Chain Store Sales were relatively slow last week in what continues to be a volatile period in another light-volume month. Business was driven by Super Bowl and Valentine’s Day promotions, while a cold snap finally enabled many chains to get rid of the last of winter-related clearance merchandise, albeit at steep discounts. Catlin Levis, Redbook analyst, said ‘At the beginning of the week some retailers noted customer traffic and sales slowed on Sunday due to the Super Bowl as shoppers’ attention was diverted. Sales did, however, pick up modestly toward the end of the week as Valentine’s Day approaches.” With much of the event-drive spending out of the way, the focus now turns to the continued roll-out of Spring merchandise lines. Gas prices continue to rise and are now 29.4 cents, or 9.1% higher just since the week before Christmas, which could restrain spending going into the back-to-school season.

- Earnings reports from Michael Kors (KORS) and Fossil (FOSL) were very positively received this morning as both stocks are soaring, and show several positive trends: 1) the luxury shopper appears to be alive and well, 2) many brands continue to shift a higher percentage of sales from wholesale/licensing to retail and direct-to-consumer, and 3) higher-margin accessories represent much higher growth potential than apparel and are grabbing increasing shelf space at stores:

• Total sales at Fossil grew 18.5% to $830.8 million in the 4th quarter, as retail sales increased 22.6% and same-store sales rose 14.4%. This was the 9th consecutive quarter of double-digit growth in both metrics. For the full year, total sales grew 26.4% to $2.567 billion and net income rose 15.5% to $294.7 million ($4.61 Diluted EPS, 22.3% YoY). The company ended the year with 392 branded stores, nearly double the amount just 5 years ago, as retail sales jumped 25.7% to $607.4 million in FY 2011. Sales per average store rose 20.7% to $1.477 million and sales per avg square foot was up 20.9% to $874, which ranks 15th out of 180 chains in our coverage universe.
• In its first earnings release as a public company, Michael Kors reported that total revenue soared 67.9% in the third quarter to $373.6 million, with retail sales increasing 82.8% to $199.4 million and same-store sales up 38%, and total revenue jumped 63.7% to $922.3 million in the first 9 months of the year. Retail sales now represent nearly 50% of total revenue, up from just 28.7% 3 years ago as the company ended the quarter with 231 stores and nearly tripled its store count over that time period. Kors is very well-positioned in the luxury space with its higher-end collection carried in ultra-exclusive department stores including Bergdorf Goodman and Harrods, it’s affordable luxury collection MICHAEL carried in better department store such as Bloomingdale’s and Nordstrom, and its retail stores which the company believes it will be able to grow to 500 (400 in North America and 100 in Europe & Japan) over the long-term. In the past 12 months, sales per store averaged $2.944 million and sales per square foot was up 26.2% YoY to $1,301, placing it 5th among all U.S. retailers in our coverage universe.

Tuesday’s Top Retail & Consumer Reads:

• Online retailers start to solve the puzzle of measuring social marketing success (Internet Retailer)
• Coupons, Exclusive Offers Appeal More to Female Luxury Buyers (eMarketer)
• Adidas Targets Teen Girl Fashion Market for $1.3 Billion in Sales (Bloomberg)
• More men becoming primary grocery shopper in their household (KDSK)
• Fashion Week designers tweak collections to appeal to Gen Y fashionistas (San Jose Mercury News)
• Simplicity Is The Key To J. C. Penney’s Reinvention (Forbes)
• Social commerce expected to grow to $30 billion in 5 years, but consumers still wary (Digitas)
• The Effect of Smartphones on Online and Offline Shopping (EcommerceBytes)
• Luxury & Outlet Malls Thriving While the Middle Gets Squeezed (Huffington Post)
• Growing menswear markets stakes larger claim on Fashion Week’s center stage (Reuters)
• Supermarkets Come Into Bloom In Floral Business (Pocono Record)