Wal-Mart (WMT) announced lower than expected January same store sales this morning of 0.5%. Analysts expected Wal-Mart’s sales to come in at 2.0%. Wall Street’s bigger disappointment with Wal-Mart is the company’s comment that “card redemptions were below expectations, and customers appear to be holding gift cards longer and using them more often for food and consumables rather than discretionary purchases.” Yesterday Macy’s (M) reported a 7.1% decline in January same store sales. Macy’s attributed sharply lower gift card purchases during the holiday season as a factor.
For accounting purposes, retailers do not recognize gift card sales as revenue until they are redeemed. Jim Cramer on his Mad Money show had predicted that retailers would do well in January because they would bring in new merchandise at full retail prices, to entice shoppers to their stores. Clearly, Cramer (who is a CNBC guest host this morning) doesn’t grasp that consumers are struggling under the weight of all their debt and the inflation of higher food and energy costs. Consumers holding gift cards for retailers selling discretionary items such as Macy’s, will wait until these retailers deeply discount the items they want before redeeming their cards.
Retail analyst Dana Telsey of Telsey Advisory Group just commented on CNBC that gift cards “are coming in below trend everywhere.” She believes February and March store sales will come in lower as well.