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Cloudy Outlook as Weather, Fuel Prices Dampen March Comps

Cold weather and high gas prices kept shoppers out of stores most of March, resulting in soft same-store sales comparisons.

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NEW YORK — March came in like a lamb, but went out like a lion.

Unseasonably cold weather and higher gas prices worked against apparel retailers by keeping shoppers out of stores during the first three weeks of last month. Improved weather conditions arrived in the final week, but analysts said it wasn’t enough to offset the softer sales.

As a result, retailers said March was pretty much a washout. There were exceptions, though, as several of the specialty and teen retailers — notably Abercrombie & Fitch Co., Wet Seal Inc. and Bebe Stores Inc. — posted robust same-store sales of 21 percent, 30.6 percent and 36.3 percent, respectively.

But retailers such as the Neiman Marcus Group and Nordstrom Inc. showed the luxury channel had trouble staying the course. March comps — sales at stores open at least a year — were positive for those retailers, but were down from their usual midsingle-digit to double-digit advances. Both Neiman’s and Nordstrom, incidentally, were up against high, double-digit sales comparisons from last year.

Despite the mixed results, it’s important to remember that one month does not make a trend, said Chris Donnelly, a partner in Accenture Ltd.’s retail practice. “There were certainly more positive trends at the beginning of the year across all the companies, and here, you really see a lot more disparity in the results being produced. Some are doing well and some, not quite as well,” Donnelly explained. “We’ll need more than a month to see the trends.”

But citing in part the earlier Easter, some retailers are already forecasting April comps to be disappointing. First-quarter earnings guidance was revised slightly lower by discounter Wal-Mart Stores Inc., even while one of its main competitors, Target Corp., which posted an 8.2 percent rise in comps at its discount stores, now expects first-quarter earnings to meet or exceed its prior forecast.

In the department store space, notables included Dillard’s Inc. with an 8 percent decline in March comps, and Stage Stores with a 12.1 percent increase. Meanwhile, the divergence between Federated Department Stores, with a 3.4 percent comp increase, and May Department Stores, with a 10.8 percent drop, had analysts concerned. The two companies are planning to merge in a $17 billion deal announced in February.

This story first appeared in the April 8, 2005 issue of WWD.  Subscribe Today.

“It almost seems as though May has kind of given up,” said Kim Picciola, an analyst at Morningstar, referring to the expected merger. Picciola also noted that “partly, what’s carrying Federated is Bloomingdale’s, kind of like Saks — there’s that luxury component helping to drive those numbers.”

Along those same lines, Mark Rein, senior manager in Capgemini’s global retail practice, wondered “if there’s a way that the middle market department stores can grab on to this ‘trading up’ phenomenon and have that type of merchandising well above what the discounters have. Let’s face it, we love to go spending $100 on a shirt, but we want the whole [luxury] experience.”

Among the 50 retailers tracked by WWD, 32 posted positive same-store sales results, while 16 said comps declined and one, Cache Inc., had flat March comps. This compares with 39 gainers and 11 decliners in February.

Newly merged Sears Holding Corp. did not report same-store sales. By channel, specialty chains posted an average comps gain of 7 percent, while mass merchants saw aggregate same-store sales rise 1.4 percent and the department store sector advanced 0.3 percent.

The International Council of Shopping Centers said total comps rose 4.1 percent, within range of its 3.5 to 4.5 percent forecast, and compared with a 7 percent rise in March 2004. Michael Niemira, chief economist at the ICSC, said in a written statement that the calendar shift of the Easter holiday, which fell one week earlier than last year, inflated March comps by 100 to 200 basis points.

“Fundamentally, the sales pace was clearly slower in March,” Niemira said. “The question is, how much is temporary and how much of that slowing will linger?” The ICSC predicted April comps will rise by 2 to 2.5 percent.

At Wal-Mart, softer sales are expected through April. Although it reported a 4.8 percent rise in March comps at its Wal-Mart discount stores, the company said it expects first-quarter profits to come in at the low end of its 56 to 58 cents-a-share guidance. April same-store sales are seen flat to up 2 percent, and total first-quarter comps are expected to be at the low end of the company’s 3 to 5 percent guidance.

“Sales of Easter merchandise were on plan; however, sales of spring seasonal merchandise, including apparel and lawn and garden, were significantly below plan. The sales shortfall in March resulted in expenses being higher than planned and the unseasonable weather resulted in gross margins below plan,” Wal-Mart said in a Thursday recorded call.

A.G. Edwards & Sons Inc. analyst Robert Buchanan downgraded shares of Wal-Mart Thursday, saying his research “points to a dearth of merchandising originality and creativity pretty much across key nonconsumables departments,” and especially in regard to what he said is Target’s “exemplary job” at identifying fashion trends.

In addition, Buchanan cited higher gas prices eating into the volume of Wal-Mart’s business from its core low-income consumer for his investment rating downgrade, which went to “hold” from “buy.”

Aside from the standout teen specialty group, which several analysts said benefited from the demographic preparing for spring break vacations, few other specialty stores came in with strong comps. United Retail Group, which operates more than 500 Avenue stores geared to the plus-size women’s market, posted a 9 percent rise in March comps, the company’s seventh consecutive month of comp-store sales increases. Avenue said in a written statement that transactions per average store increased 21 percent in the month.

“Sales growth is being driven by a broad range of products and a strong increase in transaction, both of which indicate improved product, store and brand acceptance by customers,” said Raphael Benaroya, president and chief executive officer of United Retail, in a written statement.

Meanwhile, Limited Brands and Gap Inc. each posted disappointing results, down 7 percent and 4 percent, respectively. Limited’s Express division posted a 27 percent decline in the month and management said on a recorded call that Express started a March promotional event in the last week of the month, compared with the middle of the month last year.

“Disappointing performance in the [women’s] casual assortment was driven by knit tops, casual bottoms and dresses,” Limited added on the call.

“The [specialty apparel] segment is just not attracting — consistently — the kind of customer base and the sales volume that they like,” said Accenture’s Donnelly. “I don’t know that the [customer] segment they service…was looking to start buying that product in March.”

March Same-Store Sales
 
March
February
January
 
2005
2005
2005
2005
 
% Change
% Change
% Change
% Change
Department Stores
Bon-Ton
(3.6)
(1.7)
(2.5)
6.6
Dillard’s
(8.0)
3.0
5.0
3.0
Federated
3.4
6.8
1.8
(0.4)
Gottschalks
(2.4)
11.2
(0.6)
0.9
Kohl’s
(1.0)
(0.9)
6.1
(1.6)
May Co.
(10.8)
10.1
(4.2)
(7.2)
Neiman Marcus
3.4
25.7
7.7
12.2
Nordstrom
5.5
15.9
7.0
8.8
J.C. Penney (dept. stores)
0.1
11.4
6.1
3.3
Saks Dept. Store Group
1.8
1.9
0.9
(0.9)
Saks Fifth Ave. Enterprises
2.9
20.6
7.1
3.0
Sears Roebuck (U.S. stores)
NA
0.1
1.3
0.8
Stage Stores
12.1
5.5
3.7
3.7
Average:
0.3
8.4
3.0
2.5
Specialty Chains
Abercrombie & Fitch
21.0
(1.0)
19.0
17.0
Aeropostale
6.8
14.2
13.4
2.5
American Eagle
29.2
7.6
32.4
22.0
Ann Taylor
(1.7)
12.0
(5.4)
(3.6)
Banana Republic
(1.0)
25.0
(6.0)
7.0
Bebe
30.6
20.5
25.3
29.3
Buckle
8.0
14.2
6.4
8.6
Cache
0.0
12.0
3.0
2.0
Cato
2.0
(1.0)
7.0
4.0
Charming Shoppes
(3.0)
4.0
1.0
(3.0)
Chico’s FAS
7.8
18.9
9.2
8.2
Christopher & Banks
2.0
(7.0)
5.0
19.0
Claire’s
10.0
10.0
6.0
7.0
Deb Shops
10.2
(5.2)
1.8
(0.1)
Dress Barn
7.0
9.0
15.0
1.0
Gap (U.S. stores)
(1.0)
5.0
(2.0)
(6.0)
Goody’s Family Clothing
(9.2)
0.3
(0.8)
(3.4)
Guess
6.7
13.8
1.8
4.4
Hot Topic
5.3
3.9
0.2
(2.5)
Limited Brands
(7.0)
15.0
(4.0)
9.0
Mothers Work
(3.0)
(6.3)
(2.3)
(3.7)
New York & Co.
2.9
13.0
9.8
1.2
Old Navy
(9.0)
11.0
(1.0)
(13.0)
Pacific Sunwear
4.8
12.4
10.5
8.1
Talbots
0.9
1.1
8.1
13.4
United Retail
9.0
(4.0)
13.0
8.0
Walgreen
11.6
12.6
9.3
10.0
Wet Seal
36.3
(21.1)
16.4
8.2
Wilsons
27.0
(2.6)
7.8
(1.1)
Average:
7.0
6.5
6.9
5.3
Mass Merchants
Family Dollar
2.4
2.4
4.9
5.2
Retail Ventures
(6.5)
4.1
1.5
2.9
Ross Stores
3.0
7.0
6.0
(1.0)
ShopKo
(0.6)
5.2
(3.4)
(1.7)
Stein Mart
(0.9)
18.4
6.2
13.1
Target (discount stores)
8.2
7.8
9.0
9.4
TJX
1.0
9.0
6.0
5.0
Wal-Mart (discount stores)
4.8
5.6
4.1
3.2
Average:
1.4
7.4
4.3
4.5
Tally
Up
32
40
39
35
Flat
1
0
0
0
Down
16
10
11
15
Total
49
50
50
50
SOURCE: COMPANY REPORTS; PARENTHESES INDICATE DECLINES
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