• Consumer spending increased slightly faster than expected in January, but real disposable income fell 0.6 percent in January, the largest decline in seven months – Reuters

• Cellphones Let Shoppers Point, Click and Purchase: some retailers plan to turn applications on mobile phones into information displays and devices for ordering – NY Times

• Dillard’s shares spiked over 15% on Monday as the company swung to a better-than-expected fiscal fourth-quarter profit, even as sales continue to post sharp declines – Market Watch

• Restaurant Performance Index Declines Slightly in January, But Optimism for Future Business Conditions Strengthens: Same-store sales and customer traffic levels slip; Expectations Index tops 100 for the first time in 9 months – National Restaurant Association

• Retailers Slightly Decrease Feb. Email Volume – Retailer Daily

• In new ad campaign, Lowe’s Puts Its Focus on Knowing the Customer’s Wants – NY Times

• J.C. Penney is launching its spring marketing campaign by calling attention to its growing list of exclusive fashion brands during Sunday’s Academy Awards broadcast – Dallas News

• For all the talk of stabilization and an improved outlook for the year ahead, we continue to see layoff announcements from major retailers: Walmart announced it will cut 11,200 jobs at Sam’s Club locations as it outsources in-store product demonstration jobs; Home Depot is laying off about 1,000 people as it closes 3 under-performing pilot locations; Macy’s will be eliminating 1,500 store-level positions.
• Demographic tidbits: Sharp increase in affluent online shoppers during holidays, don’t count on baby boomers to pull us out of this recession - consumer spending patterns are already changing, women cut back their spending in 2009 more than men, survey says.
• Consumer confidence continues to improve as future prospects for the economy look brighter, but consumers still describe their own personal finances as dismal – consumer spending is expected to lag previous post-recession recovery periods: The Conference Board Consumer Confidence Index Increases Moderately, Reuters/University of Michigan Consumer Sentiment Index Hits Highest Level in Two Years.
• While consumer optimism is on the rise, will anyone pay full price anymore? As a result of retailers’ heavy discounting during harsh economic times, consumers have become increasingly adjusted to shopping on sale, a trend that will continue to pose a challenge to retailers trying to recover.
• Retailers are increasingly viewing filing for bankruptcy as the beginning of the end, and are increasingly wary that they could turn out to be the next Circuit City. “Quick bankruptcies are a good thing, but they’re not necessarily good for a retailer,” Why retailers are avoiding bankruptcy (or lessons from Circuit City)
• Retailers try new survival strategies for 2010: The recession pushed shoppers to pick necessities over discretionary items, discounts over luxury. But retailers hope to shift such behavioral changes further in coming months, affecting what consumers will buy, pay and experience at stores.

The big news from this past weekend was the blizzard that swept through the East Coast, dampening the prospects for “Super” Saturday, which was expected to rival Black Friday in overall retail sales dollars. Weather intelligence firm Planalytics estimates retailers lost $2 Billion due to the storm, as traffic was down 10% on Saturday compared to last year, but said traffic soared 65% on Friday as many shoppers tried to beat the weather.

Many analysts have speculated that the storm drove consumers to make purchases online, and data from research firm Coremetrics shows it was indeed a strong weekend for e-commerce. The company said online retail sales rose 22.4% overall from last year, with Saturday sales up 24.8% year-over-year. Also, comScore said today that $24.8 billion was spent online during the first 48 days of the November-December 2009 holiday season, marking a 4% increase versus the corresponding period last year.

While results from the holiday shopping season thus far have been underwhelming, there is some optimism as survey data suggests many shoppers are holding out till the last minute for better deals. America’s Research Group (ARG) said that 41.9% of consumers have yet to complete their holiday shopping, compared to just 20.5% of shoppers at this time last year. The main reason for the procrastination – they’ve been spoiled by promotions – “Consumers have a long memory and want those substantial discounts they found last year,” says C. Britt Beemer CEO and founder of ARG.

Retailers will most likely oblige, and the competition for those last few dollars will heat up in the next few days. While we probably won’t see 80% off sales like last year, expect to see increased promotional activity and extensions of free shipping offers. Walgreens CEO Greg Wasson, commenting on quarterly earnings results today, spoke of what most retailers are experiencing:

“Consumer concerns over high unemployment and the challenging economy were a drag on holiday sales at the end of November, and we’ve seen a similar pattern through mid-December. Like every Christmas season, our performance is driven by the final days, which makes this an important week.”

Original projections for overall holiday spending were for a range between a decrease of 1% to an increase of 1% from last year. No analyst has raised expectations, so even with a strong push in the final week the end result will at best be a slight increase from last year, when November-December GAFO retail sales fell 5.3%. Until things start to materially improve in the job & housing markets, expect restrained spending into the new year.

Part of the monthly decline can be attributed to gas price deflation, as gas stations saw a 2.1% decline in sales from the prior month, and were down 32.5% from last year. Sales of autos and auto parts were very strong, led by the government’s cash for clunkers program. However, almost all other categories showed continued weakness, led by Building Materials and Department Stores, which had their worst month-over-month decline this year.

While the government’s CARS program has provided a boost to auto sales, which seem to have stabilized at a very low level, there don’t seem to to be any other near-term catalysts driving consumer demand. Retailers have responded by continuing to slash inventories, as the Commerce Department announced today that business inventories dropped for the 10th consecutive month. However, even with the cuts the inventory to sales ratio still stands at 1.38, which is higher than the 1.26 figure reported a year ago.

Though cost-cutting and inventory management has allowed many retailers to stay profitable and surprise on the bottom line, sales continue to languish and consumers continue to hunker down. With news this morning that weekly unemployment claims remain stubbornly high and foreclosures are still spiking, it’s likely retail sales won’t see much improvement in the near term.

Click here to see results by sector.

For the fiscal 2nd quarter, Macy’s reported a 9.7% decrease in net sales to $5.164 Billion from the year ago period, while same-store sales declined 9.5%. Net income was $7 million ($.02 diluted EPS) compared to $73 million ($.17 diluted EPS) last year. Excluding restructuring charges, diluted earnings of $.20 per share beat consensus estimates by a nickel.

The company raised their full-year guidance to a range of 70 to 80 cents per share from a view of 40 to 55 cents per share (excluding restructuring costs), while analysts expect the company to earn 78 cents for the year. For the 2nd half of 2009, Macy’s expects same-store sales to be down 5-6%, which would result in a comparable sales decline for the full year of 7-7.5%.

Commenting on the results, CEO Terry Lundgren said the following:

“We were able to exceed our expectations with strong earnings and cash flow in the second quarter, despite lower sales in an economic environment that continues to be very difficult. In particular, we successfully lowered inventories and managed expenses to align more closely with current levels of business. Our second quarter same-store sales performed as well as or better than most department store retailers even while we were completing the largest organizational transition in Macy’s recent history. Most of that transition work is behind us now.

Our new unified organizational structure is settling in and working well. It has allowed us to streamline decision-making and build closer relationships with our key vendor resources. And we continue to be very pleased with results from the My Macy’s initiative, which began to roll out to 49 new districts nationwide in the second quarter. Same-store sales performance in the 20 pilot districts launched in 2008 continued to outpace the remainder of the company, and the gap continued to widen in the second quarter. Going forward, we expect the gap to become less meaningful as the 49 new districts launched in 2009 come up to speed and begin producing results that parallel the pilot districts. As previously stated, we expect to see some improvement in these new districts in the fourth quarter of 2009 and especially in spring 2010.”

While the company was able to beat on the bottom line, this marks the 4th consecutive quarter of deteriorating sales performance, and they have now posted 9 straight quarters and 15 consecutive months of negative same-store sales results:

Next up on the radar: Thursday we will get U.S. Retail Sales for July from the Commerce Department, as well as earnings reports from Kohl’s, Nordstrom, Urban Outfitters, and Wal-Mart. Retail stocks have surged in anticipation of a recovery, with the S&P Retail SPDR (XRT) more than doubling from its November lows. Even a company like Stein Mart, considered on the verge of collapse only a few months ago, has seen an almost 12-fold rise from under a buck to a 2-year high near $12/share. Now is the time for these retailers to prove they have navigated the worst consumer environment in decades, and to validate their lofty equity valuations.

Back-to-School season officially kicks off this weekend with sales tax holidays in Georgia and Mississippi, to be followed by 13 other states throughout August. Most states offer exemptions on clothing, school supplies, books, computers and peripherals up to a certain dollar amount. This year, many states grappled with the balance between giving consumers a break and further weakening their own perilous financial situations. As a result of economic conditions, Washington D.C., Florida, Maryland, and Massachusetts decided not have tax holidays for back-to-school this year.

The National Retail Federation (NRF) is forecasting total back-to-school sales of $17.4 Billion, a decrease of 13.2% from last year, while America’s Research Group expects a decline of 8.5-12% on top of a 5% drop in 2008. The NRF projects average spending per family with kids aged 6-17 to drop by 7.7% to $548.72, which would be the lowest since 2006:

The NRF expects large spending declines in all categories except for electronics, which is expected to be the one bright spot, as total spending is expected to increase 4.1% and spending per family to be up 10.7%. The NRF expects total spending declines per category of: -18% for clothing and accessories, -19.8% for shoes, -21% for school supplies. In its own survey, Deloitte said that 81% will pare back on clothing, 49% will spend less on shoes, 32% will spend less on supplies, and 30% will spend less on backpacks and book bags.

The recession is still weighing heavily on the minds of American families, and though the economy is starting to show signs of stabilization, consumers are still spending extremely cautiously. Worries about unemployment, debt, and investment losses as well as high gas and food prices will continue to shape consumer buying behavior.

According to a survey of moms with kids aged K-12 conducted by OfficeMax, by far the most important buying factors are durability, price, and value. Products that are environmentally friendly are becoming more mainstream, as 34% of respondents said they would buy more eco-friendly products this year, while Deloitte said 41% will buy more “green” products this year and 31% will seek out “green” retailers.

We expect those stores that have been out-performers since the start of the year to continue to shine. Off-price retailers TJX and Ross Stores have taken market share from traditional department stores as consumers continue to trade down. Teen retailers Aeropostale and The Buckle have so far been immune to the recession, and should continue their impressive run. Dollar stores like Family Dollar and Dollar General should draw a decent chunk of the school supply business. And of course Wal-Mart will draw more shoppers than any other with its unbeatable prices and broad merchandise offerings. Most traditional department and apparel/accessory stores will continue to struggle as they have over the past year. Value-oriented names such as Kohl’s and J.C. Penney will outperform their peers, but most likely still post negative year-over-year comps.

Shoppers are also craving convenience, and drug stores will be the largest beneficiary as they have broadened their merchandise mix  beyond health and beauty products to include school supplies, small electronics, and even groceries. According to the NRF, the number of families planning to shop at drug stores is 18% higher than last year. Nielsen is forecasting a slight rise in sales of school supplies to $2.17 Billion, and James Russo, Vice President, Global Consumer Insights, said “The winners this season will be retailers who offer strong discounts and appeal to the consumer’s desire for savings and value. Look for gains from supercenters, dollar stores, drug stores and to a lesser extent, club and grocery stores.”

Retailers have been preparing for back-to-school season by clearing out merchandise and preparing lean inventories with the expectation of reduced volume. They also started promotions early, with retailers including J.C. Penny, OfficeMax, and Staples all moving towards social media campaigns this year to complement their traditional media presence. While the use of social media by teens has exploded over the past few years, retailers should take note of the fact that parents are making more of the buying decisions this year. According to America’s Research Group, just over half of American parents are trying to get their children to wear what they wore last year, and they are flexing their parental muscle in the matter, with children’s influence on buying decisions dropping by at least 20% compared to last year.

With Labor Day falling a week later than last year, retailers are hoping early promotions jump-start the extended back to school season. However, the OfficeMax survey finds that 41% of moms buy the essentials right before school starts, filling in items as needed, while 31% buy everything right before school starts. Only 28% said they would stock up on items through the summer. The NRF had similar findings, as the majority of families won’t begin their shopping until 3 weeks to 1 months before school starts.

While there are signs the recession is easing and consumer confidence is starting to slowly creep up, economic conditions are still having a large impact on consumer buying conditions. Most retailers will continue to struggle with year-over-year comp declines as they will be up against tough figures from last year when consumers had stimulus checks in their pocket. With expectations so low for back-to-school, we most likely won’t see substantial improvement from retailers until the holiday season.

• Reported a decline of 2.0% in systemwide sales for June, while comparable sales were up 2.6% vs the year-ago period. Excluding the effects of currency translation, total systemwide sales increased 4.0% during the month. While the 2.6% global comparable sales increase was below consensus expectations for a gain of 4.5%, the company has now posted 74 consecutive months of positive system-wide comparable sales growth. For the month, comparable sales results by segment were: US +1.8%, Europe +4.7%, and APMEA +0.3% (Asia Pacific, Middle East, & Africa).

• For the 2nd quarter, total systemwide sales were down 1% and revenue was down 7% from the 2nd quarter of 2008.  On a constant currency basis, sales were up 7% and revenue was up 4%.  Net income was $1.094 Billion, an 8.1% decrease from a year ago, while diluted EPS was down 5.8% to $0.98 per share. Global same-store sales were up 4.8% in the quarter, with the US +3.5%, Europe +6.9%, and APMEA +4.4%. While currency translation helped to boost results over the past few years, the company said earlier in the year it expected both second and third quarter profit to take an 11-cent-per-share hit from exchange rates. The company said the national launch of the McCafe premium coffee line-up added to sales and helped boost market share in the U.S. Commenting on the results, CEO Jim Skinner said “We’re driving results by staying focused on our global business strategy, the Plan to Win. In today’s economic environment, our performance speaks to the strength of our plan and McDonald’s ongoing commitment to our customers around the world.”

• The International Council of Shopping Centers (ICSC) said that comparable same-store sales for large chain stores fell by 0.3% in the second week of July vs a year ago, while same-store sales increased 0.5% on a week-over week-basis. Michael P. Niemira, ICSC chief economist, said although the increase was modest, it was spread across most segments despite chilly weather. ICSC Research expects same-store sales for all of July to be down about 5.5% from last year.
• Redbook Research reported that retail same-store sales for the week ending July 18th declined 5.8% compared to the year-ago period, while MTD sales for the 1st 2 weeks of July were down were down 1.7% from a month ago and down 5.7% from last year. The firm added that July is usually a clearance month and said business varied across store formats, with discounters doing their best business in consumer staples like food and household supplies. Note that Wal-Mart stopped reporting weekly and monthly sales figures in May of this year, and the substantial impact they had on the index is evident in the graph below.

While June was one of the wettest months on record, this month is shaping up to be one of the coolest July’s on record, especially for the northeast. That doesn’t bode well for retailers already struggling with an extremely tight spending environment, and July sales results will most likely be as bad or worse than June on a year-over-year basis.

ICSC Research expects same-store sales for July to be down
about 5.5 percent from last year

• After reporting last week that retail same-store decreased by 5.1% in June YoY, The International Council of Shopping Centers (ICSC) said that comparable same-store sales for large chain stores fell by 0.7% in the first week of July vs a year ago, while same-store sales decreased 0.9% on a week-over week-basis, the first weekly drop in a month. Commenting on the results, Michael P. Niemira, ICSC chief economist, said, “The cool weather pared seasonal demand, which accentuated the challenges for the industry from the economy and from reduced clearance for some retailers that did not stock up for the season. July will likely be another tough month as it is a clearance month for seasonal goods and many retailers already took hefty markdowns and have less to clear than one-year ago, since they ordered less too. Given this, ICSC Research anticipates industry sales to be down by about 5.5 percent from last year,”
• Redbook Research reported that retail same-store sales for the week ending July 11th declined 5.7% compared to the year-ago period, as well as down 4.3% from last month. Note that Wal-Mart stopped reporting weekly and monthly sales figures in May of this year, and the substantial impact they had on the index is evident in the graph below.

Looking at year-over-year comparisons, we can see that there has been stabilization at a low level, with retail sales moving sideways since the fall:

To really appreciate how weak retail sales have been over the past year, we need to take a longer-term view – below is data going back to the start of 1993:

We will be posting long-term charts for all the various sectors later today.