February is the start of a new fiscal year for nearly every company in the retail universe. And a new fiscal year brings hope and promise for strong sell-through, clean stock, rising inventory turns, expense leverage, improving return on investment, and EPS growth. But above all, retailers look for growth in comparable-store sales (sales growth in stores open more than one year, referred to in the industry simply as "comps"), because strong comps are the primary driver of all the other financial metrics.
It's ironic, then, that February can also be a notoriously fickle sales month. The only holiday of note is Valentine's Day, which drives sales in jewelry, candy, and floral -- not the most important categories for full-line retailers. Weather is often the biggest sales driver, not to mention the fact that February is also a clearance month for winter leftover merchandise. All in all, I've never put too much stock in February sales as an indicator of how a retailer is likely to perform for the balance of the year.
It's worthwhile to note who's starting strong and who isn't, kind of like handicapping the field before the real spring-season sales race begins in March. You should definitely put Nordstrom (NYSE:JWN), which reported February sales results on Thursday, on your list of strong starters for 2007. The company came out of the gate with a whopping 9.1% growth in comp sales for February, this on top of 4.9% during February last year. Great comps on top of good prior-year comps is enough to put a smile on the face of even the most cautious retail investor.
Compare that to relatively anemic comp sales reported by other department store chains, including Federated (NYSE:FD) at 1.2%, J.C. Penney (NYSE:JCP) at -0.2%, and Dillard's (NYSE:DDS), which was stuck in the mud with -9.0%.
Nordstrom said on its recorded call that all regions of the country enjoyed sales gains. All merchandise categories were positive as well, with the best sales growth in designer apparel, women's apparel, and accessories.
Now, before you start thinking everything is coming up roses at Nordstrom, keep in mind that last year was a 53-week year for the company (which tends to happen every four years for retailers reporting on a 4-5-4 calendar). That means Nordstrom's reporting calendar was shifted forward by one week in February compared to the prior year, a reporting anomaly that will continue for the rest of 2007. The company said this calendar shift helped February sales, but declined to estimate how much.
The next sales reporting date for the company is April 12, when it will post its March results. We'll have a better sense then of whether Nordstrom is pulling ahead of the pack, or whether it simply came out of the gates with a calendar-shift tailwind. Until then, I say give Nordstrom a nod.
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Fool contributor Timothy M. Otte surveys the retail scene from Dallas. He owns none of the companies mentioned in this article. The Fool has a disclosure policy.
