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Mass Trumps Dept. Stores in June Comps

Bargain-conscious shoppers boosted June same-store sales at discounters Wal-Mart and Target, but comps fell in the moderate department store sector, including Macy's.

Bargain-conscious shoppers boosted June same-store sales at discounters Wal-Mart and Target, but comps fell in the moderate department store sector, including Macy’s.

Wal-Mart Stores Inc. beat expectations for the first time since March, reporting sales growth of 1.6 percent in stores open at least a year. The performance of the world’s largest retailer helped to propel a stock market rally that pushed the Dow Jones Industrial Average to a 283-point jump, the index’s biggest increase since 2003.

Macy’s Inc. reported a 2.7 percent decline, more than the flat to 2 percent decline forecast, and dropped its second-quarter profit forecast. Kohl’s Corp. posted a 4.9 percent decline. Dillard’s was down 1 percent. J.C. Penney Co. was down 1.5 percent, which was ahead of analysts’ expectations of a 3.1 percent decrease and also helped to alleviate investor anxiety that gas prices and a slowdown in the housing market would stifle consumer spending.

Of the retailers tracked by WWD, the department store sector shed 1.8 percent on average. Specialty apparel stores squeezed out a 0.4 percent gain. The winning sector was the mass merchants with a 3 percent average gain. Overall, results were better than expected.

Analysts said the department store sector will be the one to watch in the coming months. Department stores have been the turnaround story of the past year, but seven out of the 10 department stores tracked by WWD reported a same-store sales decline in June.

With the exception of Macy’s, the channel may not be as soft as it might appear. Penney’s and Kohl’s reported declining same-store sales, but both are in “great shape” in terms of inventory, said Deborah Weinswig, managing director and retail analyst at Citigroup.

On the luxury side, after a 37.5 percent comps increase in May, Saks Inc. dropped 5.6 percent. However, Weinswig cited as the key factor the impact of a shift in the retail reporting calendar, which caused Saks to lose some early sales from its big June promotion to May. The decline was expected. The other luxury chains, Nordstrom Inc. and Neiman Marcus Group Inc., reported same-store sales gains of 2 percent and 6.4 percent, respectively.

“I had been somewhat concerned that we would end up in an aggressive environment of promotions and clearance, and there are a few retailers doing that, but not everyone is following suit,” Weinswig said. She said Wal-Mart and Macy’s were highly promotional, but both retailers had company-specific issues that drove them to be more price competitive. Wal-Mart was trying to rebound from months of sales misses and Macy’s is trying to integrate former May Co. stores acquired in last year’s merger.

This story first appeared in the July 13, 2007 issue of WWD.  Subscribe Today.

Macy’s could be showing signs of trouble, several industry experts said. The retailer did not see benefits from a very promotional June.

Moderate department stores bear watching because of a reliance in part on sales of merchandise associated with the home. Home sales have dropped year over year, said Donald Soares of CapGemini’s retail practice, which means consumers are not going out and buying home goods. This could have a negative impact on stores like Macy’s and Penney’s.

“June results were clearance-driven, as retailers got through remaining spring-summer merchandise assortments,” said Howard Tubin, director of equity research at RBC Capital Markets. “Most players were successful getting through remaining spring and summer assortments and starting back-to-school in a clean inventory position.”

In the last few weeks of June, during WWD store checks, most specialty chains were holding prominent — in some cases, storewide — sales. Retailers with large sale signs and discounts ranging from 25 to 70 percent off included Old Navy, Express, Charlotte Russe Holding Corp., Jimmy’Z, Aéropostale Inc., Gap Inc., Forever 21, American Eagle Outfitters Inc. and Banana Republic. Most of the items on sale were less trend-right. Few dresses or shorts were featured on sale racks.

The specialty sector had varied results in June, with the teen retailers buoying the category. Gap was down 9 percent and Old Navy was down 7 percent but American Eagle Outfitters reported an 8 percent increase. American Eagle’s performance was well above consensus expectations of 4.2 percent and it was up against a tough comparison with last year’s 11 percent increase for the same period.

“Despite weaker mall traffic, teen retailers were a bright spot in June, with most seeing positive same-store sales surprises. Must-have fashion items such as baby-doll tops, dresses and shorts coupled with seasonal clearance drove sales in June,” Christine Chen of Needham & Co. said in a note. Teens, in particular, are free of gas price and housing pressures.

Aéropostale reported a 0.2 percent increase in June, compared with a 5.3 percent increase last year. Speaking at the CIBC World Markets Annual Consumer Growth Conference in Boston this week, the company said June was a transitional month between two of its most important selling seasons, spring and b-t-s.

“No one has ever achieved great success during the year by having a good June,” said Julian Geiger, chairman and chief executive officer of Aéropostale. He emphasized that the company was in a good position for b-t-s following June.

Abercrombie & Fitch Co. also reported a same-store sales gain, up 2 percent over last year, although the year-over-year comparison was easy. Consensus estimates for Abercrombie & Fitch predicted a 2.6 percent decline.

Outside of the teen sector, Victoria’s Secret, Limited Brands Inc. and Banana Republic were up over last year 8 percent, 6 percent and 6 percent, respectively.

AnnTaylor Stores Corp. missed expectations, reporting a decrease of 8.4 percent, versus a 12.5 percent increase last year, much higher than the street consensus of a 4.8 percent decline. Nollenberger Capital Partners said in a note that the slowdown in business at the company’s core brand was troubling. Bath & Body Works was off 4 percent.

Mass merchants appeared to benefit from economic trends in the month, posting the highest sector average. Target Corp. reported a 3.3 percent gain in monthly comparable sales, at the low end of previously released guidance. TJ Maxx reported a 5 percent increase. The wholesale clubs performed well. BJs Wholesale Club Inc. showed a 5.3 percent gain and Costco Wholesale Corp. was up 5 percent.

Industry observers and retailers have attributed much of this quarter’s sales volatility to holiday calendar shifts, weather trends and a ho-hum fashion cycle lacking in traffic-driving trends.

“If we look at the macro environment, there is food inflation and home prices are somewhat deflationary at the moment, but I don’t think there’s any significant pressure on the consumer that hasn’t been there,” said Citigroup’s Weinswig.

Overall retail same-store sales growth slipped to 2.3 percent, according to TNS Retail Forward. Last year, June showed a 3.2 percent increase.

“There is good and bad news in the retail numbers, just like the overall economy. There’s still some goods news in the job market and that’s helping offset the bad news at the gas pump and in the housing market,” said Frank Badillo, director of the Retail Forward KnowledgeBase and senior economist.

June Same-Store Sales
June
% Change
May % Change
April % Change
DEPARTMENT STORES
2007
2006
2007
2007
Bon-ton
-8.0
6.6
1.2
-15.8
Dillard’s
-1.0
-1.0
-2.0
-14.0
Macy’s
-2.7
1.7
-3.3
-2.2
Gottschalksq
-4.3
0.3
-3.8
-0.8

Kohl’s
-4.9
7.1
10.5
-10.5
Neiman-Marcus
6.4
7.7
6.6
1.0
Nordstrom
2.0
4.7
6.3
1.0
J.C. Penney
-1.5
4.3
-2.0
-4.7
Saks Fifth Ave. Enterprises
-5.6
5.3
37.5
11.7
Stage Stores
1.4
3.5
1.7
-14.8
Average:
-1.8
4.0
5.3
-4.7
 
SPECIALTY CHAINS
Abercrombie & Fitch
2.0
-4.0
-5.0
-15.0
Aeropostale
0.2
5.3
1.9
-14.0
American Eagle
8.0
11.0
5.0
-10.0
Ann Taylor
-8.4
12.5
-4.6
12.8
Banana Republic
6.0
-4.0
3.0
13.0
Bath & Body Works
-4.0
8.0
-3.0
-2.0
Bebe
-5.4
3.5
-3.0
-9.0
Buckle
13.3
-5.9
8.8
1.8
Cache
1.0
4.0
-2.0
2.0
Cato
0.0
-3.0
-2.0
2.0
The Children’s Place
-4.0
15.0
4.0
-2.0
Chico’s FAS
-7.3
5.1
-2.9
-7.3
Christopher & Banks
3.0
10.0
4.0
-12.0
DEB SHOPS
1.9
-4.9
0.2
-4.7
DRESS BARN
2.0
6.0
10.0
-6.0
Gap (U.S. stores)
-9.0
-4.0
-7.0
-14.0
Hot Topic
-4.0
3-3.1
-6.1
-9.1
Limited Brands (total apparel)
6.0
9.0
5.0
6.0
Mothers Work
-5.4
6.2
-3.6
-14.8
Old Navy
-7.0
-6.0
-3.0
-20.0
Pacific Sunwear
4.5
-2.7
6.4
-16.5
Rite Aid
0.7
3.6
1.7
2.1
United Retail
-1.0
5.0
4.0
-4.0
Victoria’s Secret
8.0
6.0
5.0
-4.0
Walgreen
5.1
9.0
6.4
9.2
Wet Seal
0.7
-4.0
1.9
-9.6
Wilsons
-9.4
-19.9
-25.0
-20.0
Zumiez
13.7
12.4
11.2
3.0
Average:
0.6
2.5
0.5
-7.9
 
MASS MERCHANTS
BJ’s Wholesale Club
5.3
-0.1
4.1
1.2
Costco
5.0
4.0
7.0
6.0
Ross Stores
4.0
5.0
5.0
-7.0
Stein Mart
-2.9
0.9
2.5
-13.9
Target
3.3
4.8
5.8
-6.1
TJX Cos.
5.0
4.0
5.0
-1.0
Wal-mart (discount stores)
1.6
1.2
0.3
-4.6
Average:
3.0
2.8
4.2
-3.6
Tally:
Up
25
32
30
11
Flat
1
00
0
0
Down
19
13
15
34
Total
45
45
45
45