Soring Department Store Sales Are Shocking Analysts

As analysts examined their charts to figure out what happened, department store sales surged in January after months of decline.

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Morning Consult analyst Claire Tassin's stomach dropped when she saw sales rose by 3% last month, an improvement from December's 1.1% decline and above forecasts for 1.7%.

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It was the department store sales that surprised the most in Wednesday's report, which increased 17.5% over last month and 5.4% over last year.

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Since department store sales have declined for the past three months, and analyst pessimism is rising, the surge is all the starker. In fact, department stores themselves have not commented on the bump. A forecast of softer holiday sales was issued by Nordstrom JWN –1.98% (ticker: JWN ) in late January, while Macy's M –1.36% ( M ) had previously stated that sales would come in at the lower to middle end of what it had forecast due to unexpected lulls in demand outside of peak shopping weekends.

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Investing markets are unsure what to do about the apparent reversal of department store sales trends.

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The Boock Report author Peter Boockvar writes that he doesn't know why department sales are up, but he would like to hear from anyone that knows why.

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Nordstrom shares increased 0.5%, while Kohl's KSS-2.33% ( KSS ) remained unchanged. Macy’s and Dillard’s ( DDS ) shares rose 1.7% and 2%, respectively.

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In terms of retail sales reporting, the Census Bureau classifies department stores as those that carry a variety of items, including apparel, furniture, and appliances as well as toiletries, cosmetics, and jewelry. A store that sells all of that, as well as groceries-such as Walmart WMT -0.81% ( WMT ) and Target TGT -0.14% ( TGT )-is classified under a separate category.

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Several factors contributed to department store sales growth, according to Morning Consult's Tassin.

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The data is adjusted for seasonal spending patterns, which is one of the main reasons. Consumer holiday shopping has been spread out more widely these days, as Barron’s reported previously. December's seasonal sales have slipped since 2021, but January's have outperformed them. A sales decline of 6.6% occurred in December 2020, but then a 19% rebound took place in January 2021. A 9% decline in sales was recorded in December 2021, but an 11% increase in sales was recorded in January 2022.

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In addition to the rise in holiday spending, Tassin said some consumers may have held off on spending during the holiday season. The Nordstrom promotions, which continue into the month of January, are likely to have been encountered by them - Barclays analyst Adrienne Yih reports that Nordstrom promotions continue to increase throughout the final quarter of its fiscal year.

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Eugenio Aleman, Raymond James' chief economist, said that the weather also helped. Shopping traffic may have been driven back to stores as a result of a relatively warm January. According to Placer.ai, mall traffic grew in January by 4.1% at indoor malls and 5.3% at outdoor malls, respectively. In light of the uptick in visitors, department stores are likely to have received some of this traffic.

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There is also the possibility that inflation played a role. In the wake of rising prices, Tassin said, consumers were more budget-savvy this year and looking for ways to reduce their spending on gifts. Many shoppers find gift cards appealing as a gift because they can accomplish this, she said. In some cases, gift card sales don't register until the customer uses the card, so the higher sales figure may be due to the fact that card sales carry over into January. The reason department stores are a popular gift destination is that their cards come with a broader selection of products than other specialty retailers, Tassin noted.

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In spite of that, analysts anticipate that January's surge is merely a one-time event rather than a long-term trend in department store shopping.

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In January we should not look too heavily at today's numbers because it's the second smallest month of the year," wrote D.A. In his research note published Wednesday, D.A. Davidson analyst Michael Baker warned.

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Department stores' quarterly earnings reports, due later this month and in early March, will be a better gauge of how they are doing.

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