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Comps Slumber in September

The strong fashion cycle that boosted retail sales in the first half of this year and through most of 2003 could be nearing its end.

NEW YORK — The strong fashion cycle that boosted retail sales in the first half of this year — and most of 2003 — could be nearing an end as same-store sales came in soft for a second consecutive month.

As a whole, retail comps — sales at stores open at least a year — have decelerated since June and failed to be helped, as largely expected, by a strong back-to-school selling season. Instead, it seems shoppers have cooled their spending as broader, macroeconomic issues stymie their confidence.

“It would be safe to call [September’s results] flat,” said Janet Hoffman, a partner in Accenture Ltd.’s retail practice. “There were one or two outliers, but [the results were] by and large disappointing.”

Hoffman stressed two main reasons for the month’s weakness. First was the strength of comps in September 2003. “That was kind of the beginning of the [retail spending] turnaround,” she said. Secondly, Hoffman cited the poor weather from several hurricanes that slammed the East Coast in the past month.

“I typically don’t want to put too much emphasis on the weather, but clearly the hurricanes and the impact on the East Coast…didn’t make for a positive outcome,” said Hoffman.

Even though September’s same-store sales were up against the hardest comparisons of 2003, as well as weather, which was not ideal, many analysts were focused on the state of the consumer, which implies that more of the same comp weakness could be ahead if the economic picture doesn’t improve.

Among the 50 retailers tracked by WWD, 31 retailers came in with positive comps while 19 posted negative results. Specialty chains had the biggest aggregate increase with 2.4 percent, while mass merchants came in with the weakest gain of 0.2 percent.

Goldman Sachs Retail Composite Index rose 1.9 percent in September, an improvement over August’s meager 0.4 percent rise, though still the second worst gain in the last year. Showing similar results, aggregate September results as tracked by the International Council of Shopping Centers increased 2.4 percent. That compared with the ICSC’s 1.1 percent increase in August, which was later revised to a gain of 1.3 percent.

Some analysts speculated that September’s weak results reflect the cyclical downturn of a strong fashion cycle. “Fashion fragmentation, growing personalization of styles and completion of wardrobes are contributing to a broader-based weakness in growth in clothing, footwear and accessories,” said Bernard Sands LLC retail analyst Richard Hastings.

Hoffman agreed: “There’s not what I would call a must-have outfit or a must-have look that is helping to bring people in.”

Merrill Lynch analyst Mark Friedman had a slightly different view. “Although fashion has been appealing this fall, the best trends are working in accessories and dressy, leaving the bulk of the apparel business — casual — uninspired,” he said in a Thursday research report. Friedman expects October same-store sales to be strong, thanks to expected colder weather and easier comparisons with the same period of 2003.

Evan Jones, managing partner of Brightleaf Partners investment partnership, said weaknesses in certain women’s specialty retailers could be a beginning symptom of the end of the past year’s fashion cycle. “I could see how people are going to that trend,” said Jones, citing the soft results from both The Ann Taylor Stores Inc. and The Talbots Inc. “I don’t know that I would call it that right now,” he said, since Chico’s FAS posted a positive 5.2 percent comp even though its operations were hurt by the hurricanes.

Aside from a few standouts, mainly in the specialty and luxury retail sectors, September comps also reflected a consumer hurt by both higher gas prices and stagnant wages. Hastings said income wages aren’t keeping up with inflation. While the jobs picture is slowly improving, wages aren’t sufficient enough to boost personal spending levels. Further, discretionary income levels are taking a hit from consumers caught up in the home improvement wave, he said, which was spurred partially from last year’s pop in mortgage refinancings.

But Jones thinks the consumer has actually returned to more normal spending levels. Following last year’s jump in discretionary spending, caused by pent-up demand for more fashionable merchandise, he said the slight increases in same-store sales in the past few months have been decent when looked at on a two-year basis. “The comps for this September weren’t that bad because a lot of companies were still reporting up comps after last year’s 20 percent gains. A lot of people called it consumers slowing spending, but really, it’s a return to more normal levels,” he said.

Yet, according to a report issued Thursday by Standard & Poor’s credit rating agency, “signals for continued consumer spending are a bit less positive, as consumer confidence has declined since very strong June survey results. Perceptions of an improving job market are vying with concerns about rising interest rates and high energy costs.”

Hoffman said retailers who have made an effort to put themselves in the shoes of their target consumers are tending to have improved comps, relative to most of the market. She cited Nordstrom Inc., The Neiman Marcus Group Inc. and J.C. Penney Co., who have been tracking their customers closely. “J.C. Penney knows their consumer, but Nordstrom and Neiman [Marcus] have just a laser focus on their consumer,” she said. Yet, while J.C. Penney, for example, posted a 2 percent increase in September comps, the rest of the department store group continued to flounder.

Finally, American Eagle’s 23.3 percent surge in its U.S. namesake stores was not unlike most of the months the division has seen this year. “American Eagle continues to exceed sales and margins plans, benefiting from its fashion-right assortment, dominant position in the key back-to-school category of denim and the fact that close competitors have either deemphasized targeting the ‘mating phase’ consumer, or priced their product above American Eagle’s core mass audience,” wrote Susquehanna Financial Group analyst Tom Filandro in a Thursday research report.

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September Same-Store Sales
Sept. 2004 % change
Aug. 2004 % change
July 2004 % change
June 2004 % change
DEPARTMENT STORES
Bon-Ton
-0.1
-4.6
1.4
-3.8
Dillard’s
-3
-5
-4
-1
Federated
0.1
-2.4
3.7
3.4
Gottschalks
6
0.5
-0.4
3.3
Kohl’s
-1.3
-0.7
-4.2
-3.7
May Co.
-1.5
-6.7
-5.5
1.9
Neiman Marcus
6.3
14.7
16.6
13
Nordstrom
6.2
7.2
6.1
5.7
J.C. Penney (dept. stores)
2
3.8
8.1
4.8
Saks Dept. Store Group
-10.9
0.9
0.8
2
Saks Fifth Ave. Enterprises
5.8
2.9
12.8
18.3
Sears Roebuck (U.S. stores)
-3.2
-6.1
-2.6
-3.1
Stage Stores
2.5
8.1
-7.8
-2.5
Average:
0.7
1
1.9
2.9
 
SPECIALTY CHAINS
Abercrombie & Fitch
2
-5
-9
-5
Aeropostale
1.9
6.2
13.8
21.3
American Eagle (U.S. stores)
23.3
26.6
21.7
8.7
Ann Taylor
1.4
-4.5
-2.1
11.9
Banana Republic
6
0
-10
11
Bebe
17.6
9.2
9.7
6.7
Buckle
0.3
6.7
2.4
10.3
Cache
-2
0
-4
-4
Cato
1
0
-3
-5
Charming Shoppes
-2
-2
-1
-2
Chico’s FAS
5.2
3.6
13.7
10.9
Christopher & Banks
-7
-4
-5
-8
Claire’s
10
7
9
11
Deb Shops
0.9
-2.4
5.8
-4.5
Dress Barn
6
0
1
-1
Gap (U.S. stores)
-1
0
-3
-2
Goody’s Family Clothing
-9.1
3.5
-4.5
-3.2
Guess
13.6
5.9
14.1
12.7
Hot Topic
1.1
-8.7
-5
-0.4
Limited Brands
-5.0
-2.0
0.0
19.0
Mothers Work
-8.9
-13
-2.6
-10.9
Old Navy
-6
-1
-2
-2
Pacific Sunwear
9.8
3.7
6
7
Rite Aid
2
2.9
2.9
2.4
Talbots
-1.3
-4.6
-8.8
0.9
United Retail
6
-2
1
-5
Walgreens
9.3
9.7
8.2
10.6
Wet Seal
-8
-14.8
-14.7
-10.1
Wilsons
3.7
9
21.1
19.2
Average:
2.4
1
1.9
3.5
 
MASS MERCHANTS
Family Dollar
1.5
-0.1
1.4
0.9
Retail Ventures
-7.3
-4
-2.3
-4.4
Ross Stores
-5
-8
-5
-4
ShopKo
-1.2
-0.2
-0.6
2.2
Stein Mart
5.2
2.4
6.2
12.5
Target (discount stores)
5.6
1.8
4.1
2.2
TJX
1
4
3
2
Wal-Mart (discount stores)
2
0.1
2.4
1.3
Average:
0.2
-0.5
1.2
1.7
 
Tally:
Up
31
23
26
29
Flat
0
5
1
0
Down
19
22
23
21
Total
50
50
50
50
Figures represent percent change of year-over-year same-store sales. Source: Company Reports