Cautious Consumers Weaken Comps

Although slightly better than anticipated, retailers reported weak January same-store sales results, sparking fears that shoppers would hold the line on spending - at least in the near term.

Although slightly better than anticipated, retailers reported weak January same-store sales results, sparking fears that shoppers would hold the line on spending — at least in the near term.

Overall, January comps showed reluctance by shoppers to succumb to the lure of discounts and gift cards. Hardest hit were the moderate department stores, which worked hard in January to drive shoppers into stores.

But raised earnings guidance from J.C. Penney Co. Inc. and Gap Inc. lifted the mood of investors, who buoyed the retail sector Thursday.

As a result, the WWD Composite Stock Index grew 2.7 percent to 884.51, while the S&P Retail Index soared 3.7 percent to 403.52. The Dow Jones Industrial Average gained 0.4 percent to close at 12,247, while the broader S&P 500, increased 0.8 percent to 1,336.91.

At the bell, J.C. Penney rose 8.5 percent to $47.44, while Gap gained 7.2 percent to $19.65. Other stock gainers included Talbots Inc., up 13 percent to $9.25, while Macy’s Inc. leapt 5 percent to $25.11.

The good news, according to analysts, was that many retailers had improved inventory positions, which means gross margin rates should maintain some strength. The market is also looking forward to spring, which promises stronger fashion trends.

Until then, a look at January’s results shows an overall improvement over December. Of the retailers tracked by WWD, the mass channel had an average gain of 2.2 percent, up from December’s 1.1 gain. The specialty channel delivered an average decline of 1.2 percent, an improvement from December’s 3 percent fall. The department stores shed 3.6 percent, an improvement over December’s 5.4 percent drop.

Looking at total net sales for the month, specialty stores gained 2.5 percent while mass merchants rose 1.5 percent. But department stores fell a staggering 21 percent, supporting the notion that there’s been a pull back on spending from the aspirational segment of the market.

“Consumers are starting to face the reality that it might be time to stop spending,” said Patricia Walker, partner in the consulting firm Accenture.

Craig Johnson, president of Customer Growth Partners, countered that things are not as bad as it seems. Johnson said it is important to note that comp sales do not include online sales, “which means that you’re missing 7-plus percent of the retail economy.” Johnson said retailers such as Apple Inc. and have delivered annual growth rates of 45 and 42 percent, respectively — indicating the strength of online sales.

This story first appeared in the February 8, 2008 issue of WWD.  Subscribe Today.

“The sky did not fall,” added Christine Chen, vice president, equity research at Needham & Co. LLC. “Though disappointing, January same-store sales were not as bad as feared, and most retailers reiterated fourth-quarter outlooks, due to controlled inventory levels, despite a predominantly clearance month. January saw the benefit of seasonally appropriate temperatures versus the heat wave last year, which helped clear winter merchandise.”

Still, the results show that shoppers have pulled back. Shoppers are also shifting gears in regard to the types of products they buy.

“For the near term, consumers are going to continue to be cautious until they get some indication at a macroeconomic level that things are swinging back the other way,” said Accenture’s Walker. The macro shift would have to be fairly big, versus small efforts like the stimulus package and other proposals, she said.

“The numbers leave no doubt that consumers are holding the line on spending amid the weakening economy. According to some retailers, gift card redemptions helped but were below expectations. It also appears that consumers are spending mostly on necessities,” said Ayuna Kidder, economist and consultant, TNS Retail Forward. Sales figures were helped by stronger-than-average results at drug stores and warehouse clubs, according to the firm.

On a same-store sales basis, moderate department stores in particular lagged in January. Macy’s, Kohl’s Corp. and Dillard’s Inc. reported drops of 7.1, 8.3 and 12 percent, respectively. J.C. Penney’s decline of 1.9 percent beat expectations. Also, J.C. Penney said it now projects fourth-quarter earnings to be at the high end of its original guidance range of $1.65 to $1.80 per share.

Luxury department stores were more of a mixed bag. Saks Inc. reported a 4.1 percent increase, just beating consensus estimates. Neiman Marcus Group Inc.’s comps grew 3.3 percent, while Nordstrom Inc.’s fell 6.6 percent, missing predicted results by a wide margin.

In the mass channel, Wal-Mart Stores Inc. reported a monthly increase of 0.2 percent for its stores, missing expectations by a wide margin.

“The miss may debunk the notion that there is a significant trade down taking place in the retail space,” said Ken Perkins, president, Retail Metrics. “Moreover, the Arkansas-based retail giant indicated that gift card redemptions were not as brisk as expected and that consumers may be using them to purchase consumables such as groceries when they cash in gift cards.”

Wal-Mart wasn’t the only retailer whose gift card redemption left something to be desired, analysts said.

“It’s very telling that even gift cards are being seen as something more basic versus something to splurge with,” said Accenture’s Walker. Consumers in January generally trended towards using gift cards for consumables and basic items, bucking previous trends of using the cards to buy things they normally wouldn’t, she said.

“Where were the gift cards? As we have pointed out numerous times, gift cards do not save retailers from poor holiday seasons; in fact, we believe, by shifting sales away from higher margin periods, that they exacerbate declines; this month should provide solid evidence for investors to ignore the ‘fool’s gold’ of gift cards,” said Eric Beder, Brean Murray, Carret & Co.

In the specialty channel, there were several challenges, which will likely impact the sector through the spring.

“Traffic-transactions, markdowns and lack of fashion newness remain core issues in the [specialty] sector. February is not likely to pick up steam, since it is typically a softer month and it is in between seasons,” said Roxanne Meyer, analyst, Oppenheimer & Co.

Aéropostale Inc. and Urban Outfitters Inc. provided bright spots for the teen sector of the specialty market with product that was on trend, analysts said.

Urban Outfitters reported a quarterly comps jump of 11 percent for the company, driven by same-store sales growth of 19 percent at Anthropologie, 18 percent at Free People and 6 percent at its namesake stores. Both Anthropologie and Urban Outfitters exceeded expectations. The company has consistently been a top pick by analysts.

Other standouts in January included Aéropostale. The company reported a comps increase of 4.7 percent, beating consensus estimates and the performances of its peers. Abercrombie & Fitch Co. results were flat and American Eagle Outfitters Inc. declined 7 percent. Aéropostale management said it had made good progress in clearing out holiday merchandise and had gotten good early reads on its spring sets.

Banana Republic was up 5 percent. Gap and Old Navy dropped 4 and 3 percent, respectively. All three of the Gap Inc. banners beat consensus expectations.

The missy sector saw a drop in sales momentum. Chico’s FAS Inc. showed the largest comps drop for the month, tumbling 22.1 percent. Talbots reported a quarterly same-store sales drop of 6 percent and announced the closure of 100 underperforming stores in 2008. AnnTaylor Stores Corp. reported flat sales. Christopher & Banks Corp. declined 6 percent.

January December November
2008 2007 2007 2007
% Change % Change % Change
Bon-Ton -1.3 6.4 -11.3 8.6
Dillard’s -12.0 -3.0 -5.0 1.0
Macy’s Inc. -7.1 8.6 -7.9 13.4
Gottschalks -7.4 -1.0 -13.8 0.4
Kohl’s -8.3 8.7 -0.7 10.2
Neiman Marcus 3.3 11.3 2.9 5.8
Nordstrom -6.6 11.1 -4.0 8.7
J.C. Penney -1.9 3.6 -7.5 2.6
Saks 4.1 11.4 0.8 25.7
Stage Stores 1.0 7.5 -7.1 3.6
Average: -3.6 6.5 -5.4 8.0
Abercrombie & Fitch 0.0 -6.0 -2.0 2.0
Aéropostale 4.7 5.4 12.2 6.6
American Eagle -7.0 17.0 -2.0 0.0
Ann Taylor 0.0 -10.2 -9.4 3.9
Banana Republic 5.0 14.0 -1.0 4.0
Bath & Body Works -10.0 19.0 -8.0 -6.0
Buckle 19.1 7.8 18.7 18.2
Caché 7.0 10.0 -10.0 -4.0
Cato -2.0 -7.0 -8.0 -6.0
The Children’s Place 6.0 3.0 2.0 3.0
Chico’s FAS -22.1 -3.5 -13.7 -13.7
Christopher & Banks -6.0 -4.0 -1.0 1.0
Gap (U.S. stores) -4.0 -6.0 -9.0 1.0
Hot Topic -3.6 -6.6 -6.2 -8.3
Limited Brands -8.0 12.0 -8.0 -7.0
Mothers Work -2.1 -6.0 -7.6 0.0
Old Navy -3.0 -1.0 -8.0 -3.0
Pacific Sunwear -7.4 -7.7 -2.8 2.3
Rite Aid 2.0 4.5 -0.5 0.9
Victoria’s Secret -8.0 7.0 -8.0 -8.0
Walgreen 3.8 10.8 2.6 4.4
Wet Seal -5.7 3.6 0.6 -1.7
Wilsons 10.4 -20.0 -7.1 0.4
Zumiez 1.7 13.0 3.9 5.6
Average: -1.2 2.0 -3.0 -0.2
BJ’s Wholesale Club 7.8 0.6 3.0 7.7
Costco 7.0 9.0 7.0 6.0
Ross Stores 1.0 2.0 3.0 3.0
Stein Mart -2.5 0.0 -5.7 -8.9
Target -1.1 5.1 -5.0 10.8
TJX Cos. 3.0 6.0 3.0 7.0
Wal-Mart (discount stores) 0.2 1.3 2.6 1.0
Average: 2.2 3.3 1.1 3.8
Up 17 27 14 29
Flat 2 1 0 2
Down 22 13 27 10
Total 41 41 41 41
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