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Gross Margins Expand in Qtr.

NEW YORK — Whoever sees June and July as markdown, slash-and-cut clearance months, may want to do some rethinking.<BR><BR>Of the retailers reporting second-quarter results last week, the majority experienced higher, year-over-year gross margin...

NEW YORK — Whoever sees June and July as markdown, slash-and-cut clearance months, may want to do some rethinking.

Of the retailers reporting second-quarter results last week, the majority experienced higher, year-over-year gross margin rates as inventories remained lean and promotional markdowns were few.

Of the 17 apparel retailers reporting results, 11 posted gross margin rate gains while 6 reported declines. Of the gainers, eight were above 100 basis points while three, Aeropostale Inc., Stein Mart Inc. and Gap Inc., delivered gross margin gains above 250 basis points.

The second quarter for most of these companies closed at the end of July, which, along with June, have been traditional clearance months at retail.

But this year, retailers have pulled the trigger on markdowns later in the quarter, and in some cases, into the current quarter. Moreover, because of better managed inventories, there’s been fewer goods to mark down.

For example, improved inventory management, along with a focused effort to reduce markdowns, paid off for Gap Inc. On Thursday, the retailer posted second-quarter sales that inched up 1 percent to $3.72 billion from $3.69 billion.

But due to a disciplined approach to selling goods at fuller prices, the impact on Gap Inc.’s margins was immense. The gross margin rate jumped 250 basis points to 38.46.

“Gross margin expansion should continue as the company concentrates on more full-price selling and fewer markdowns to lift merchandise margins,” wrote Margaret Mager, equity analyst at Goldman Sachs, in her research note following Gap’s results. “We see the most improvement potential on the gross margin line.”

— Arthur Zaczkiewicz

Better Margins
Retailer:
Gross Margin Rate 2Q 2003
Gross Margin Rate 2Q 2004
Basis Point Change
 
Aeropostale Inc.
27.38
30.53
315
Stein Mart Inc.
23.51
26.27
276
Gap Inc.
35.96
38.46
250
Nordstrom Inc.
33.08
34.94
186
J.C. Penney Co.
35.94
37.41
147
Dicks Sporting Goods
27.31
28.62
131
Limited Brands Inc.
34.87
36.09
122
Too Inc.
30.23
31.39
116
Goody’s Family Clothing
29.23
29.86
63
Charming Shoppes Inc.
29.23
29.7
47
Saks Inc.
36.46
36.8
34
TJX Cos.
23.61
22.99
-62
Talbots Inc.
35.02
33.9
-112
Hot Topic Inc.
35.98
34.38
-160
Ross Stores Inc.
25
23.39
-161
Stage Stores Inc.
28.08
26.2
-188
The Wet Seal Inc.
15.56
9.98
-558
Source: Company Reports