Although April showers and an early Easter wiped out same-store sales for most apparel retailers, there’s hope that May will bring in the green.
The early Easter holiday combined with a colder-than-average April drove sales down across all sectors, and caused many retailers to miss both their own and industry expectations.
While lower sales were anticipated, the declines were steeper than expected.
Of the retailers tracked by WWD, the department store sector reported an average same-store sales decline of 4.7 percent. Mass merchants decreased 3.6 percent, and specialty stores posted the worst performance with an average decline of 7.8 percent.
Results showed the deepest year-over-year decline on record since the early Nineties, said John Lonski, chief economist for Moody’s Investor Services. He said it was important not to predict excess gloom from the results.
“We want to be very careful about extrapolating too much bad news from this report,” Lonski said. Other economic factors such as state jobless claims, work derived income (the sum of wages, salaries and the income of the self-employed) and energy prices are also exerting conflicting forces on consumer spending.
Despite all those concerns, many retailers and industry observers stressed that overall, many retailers did not fare horribly for the spring, if March and April sales are considered in tandem.
“When you look at April sales in isolation it seems a bit like a disaster,” said Donald Soares, a principal in Capgemini’s retail practice. “But I wouldn’t read too much into the negative April sales figures.”
April was under pressure from so many quarters that it’s important not to overreact to the monthly tallies, sources stressed, although it will be important to watch how economic factors play out.
“Questions coming out of this month are: is there something bigger happening, or is it truly just weather and Easter?” said Deborah Weinswig, managing director and retail analyst with Citigroup. For most retailers, she said, it really is about those factors although some might be facing larger issues.
Energy prices could also be impacting consumers’ willingness to get out and shop, industry observers said. Gas prices in some parts of the country are approaching $4 a gallon. It is possible that consumers have reached the tipping point in relation to gas prices, said Janet Hoffman, managing director of the North American retail practice for Accenture.
In addition to factors beyond retailers’ control, a lack of consumer excitement over spring and summer fashion items could also potentially impact retail sales. “We’re almost getting into summer and it’s not at all clear what the hot new item is. That more than anything should be a worrisome trend for apparel retail this year,” said Soares.Usually there is a list of “must-haves” for the summer, but that has been much more difficult this year, Weinswig said. Apparel trends are mixed and many are a continuation from previous seasons, including the prevalence of dresses. Many teen retailers in the specialty sector, the chains most vulnerable to a lack of buzz, reported double-digit declines. Abercrombie & Fitch Co. was off 15 percent, Aéropostale Inc. was down 14 percent, and American Eagle Outfitters Inc. was down 10 percent.
American Eagle’s negative same-store sales surprised both the company and analysts, missing expectations all around. The company said the negative sales comparison was due to the Easter timing shift and generally disappointing traffic trends.
Gap Inc. suffered across all its banners in April, reporting comparable-store declines of 13, 14 and 20 percent, respectively, at Banana Republic, Gap and Old Navy. In March, the struggling retailer had reported its first comparable-store sales increases at all three banners in years.
“Driven by the shift of Easter, our April results deteriorated as compared to March. In addition, our merchandise margins were significantly below last year largely because of clearance selling at Gap brand,” said Sabrina Simmons, senior vice president, corporate finance at Gap Inc., in a statement.
Limited Brands missed expectations and reported negative comps at Victoria’s Secret and Bath & Body Works of 4 and 2 percent, respectively. Total apparel for the company was up 6 percent, driven mostly by above expectation sales at Express, according to analysts.
Other notable declines in the specialty sector included Ann Taylor’s 12.8 percent drop and Chico’s 7.3 percent decrease.
Luxury department store retailers continued to outperform other sectors, and their less upscale siblings. The trend shows a continued bifurcation of consumer spending, said Lonski.
Saks reported the highest same-store sales of any apparel retailer in the WWD index, with an 11.7 percent increase, and beat industry expectations, an anomaly in April. It was the standout store, said Weinswig. Saks said its sales were driven in part by women’s designer sportswear and “gold range” apparel, evening dresses, accessories and intimate apparel.
“We believe that Saks is gaining mind share and market share, especially when compared to Neiman’s and Nordstrom’s sales performances this month,” Weinswig said in a note.
Nordstrom turned in a 3.1 percent gain and Neiman Marcus was up 1 percent.
Federated Department Stores Inc. reported a 2.2 percent decline in same-store sales, as compared with a previous company estimate of an increase between 2.5 and 4 percent for April. The company also missed analysts’ expectations.
The Bon-Ton Stores Inc., Dillard’s Inc., Kohl’s Corp. and J.C. Penney Co. Inc. reported negative comps of 15.8, 14, 10.5 and 4.7 percent, respectively. Despite negative April figures J.C. Penney reiterated its first-quarter earnings guidance of $1.03, and Kohl’s raised its to 62 cents from an estimate of 57 to 61 cents.
The big surprise in the mass merchant sector was Target’s miss, analysts said. The retailer reported a comparable-store sales decline of 6.1 percent, larger than Wal-Mart Stores Inc.’s 4.6 percent decline.
“Our comparable-store sales in April were weaker than expected, resulting from a sales shortfall in the first two weeks of the month,” said Bob Ulrich, chairman and chief executive officer of Target. He said the company expects to stay on target for its overall financial expectations for 2007.
Wal-Mart said its drop in same-store sales was driven by softness in the apparel, home and hardlines sectors at Wal-Mart Stores. The cold weather in particular impacted traffic and seasonal apparel sales, the company said in a statement.
TJX Cos. reported a decline of 6.1 percent, Ross Stores were off 7 percent, and Stein Mart turned in the sector’s biggest drop of 13.9 percent.
The club stores, BJ’s Wholesale Club Inc. and Costco Wholesale Corp., turned in positive comps of 1.2 percent and 6 percent, respectively.
“The early Easter hurt April sales, but the hurt is focused on retailers serving lower-income shoppers more so than upper-income shoppers,” said Frank Badillo, Senior Economist and Director of the Retail Forward KnowledgeBase. “Upper-income households continue to benefit from job and income gains, but lower-income households are taking the brunt of job losses and high fuel prices.”
Many retailers and analysts said the year-over-year weather comparison was particularly harsh. “From a retailer perspective, the April comparison went from best case (last year) to worst case (this year). It’s a great example of the often underestimated impact of weather and climate on consumer spending volatility and the broader economy,” said Paul Walsh, senior vice president for weather-based business intelligence firm Planalytics, in a statement.
Last year’s record warmth and a late Easter drove strong sales in April, according to Planalytics, creating “a daunting sales comparison this year” for many retailers. This year March benefited from warmer weather, which pulled sales forward. April 2007 was the coldest in 10 years, Planalytics said.
Some analysts noted that it will be telling to see how retailers rid themselves of leftover spring merchandise to make room for summer products. Smart retailers who are able to clear out of the April slump and get back on track with their consumers could recover next month, said Accenture’s Hoffman.
“May is going to be really important as an indicator,” she said.