NEW YORK — Clocks sprang forward but retail sales fell back in April.
This story first appeared in the May 9, 2003 issue of WWD. Subscribe Today.
Retailers on Thursday reported lower-than-expected comparable-store sales results as literally cool temperatures and a lack of figuratively cool fashion kept shoppers’ wallets closed, eliminating hope that the late Easter would deliver to April what it took away from March. Nor did the early end to Iraqi hostilities provide the needed sales bounce.
Major chains such as Wal-Mart, Kohl’s, J.C. Penney Co., American Eagle Outfitters and Abercrombie & Fitch saw results come in below plan. In addition, several chains ratcheted down first-quarter earnings guidance, including Kohl’s, where comps declined 4.1 percent; The May Department Stores Co., down 5.6 percent; American Eagle Outfitters, down 1.4 percent in the U.S.; Ann Taylor, down 3.2 percent, and Talbots, down 6.5 percent.
Larry Montgomery, chairman and chief executive of Kohl’s, said in a statement: “We had a very late start on the selling of spring apparel. With more normal temperatures arriving in the majority of our markets for the last week, we did see a positive change in sales trend for the final week of the quarter.”
Deborah Weinswig, a retail analyst with Citigroup Smith Barney, said in a research note that she was “disappointed” by results in April, as the Easter shift did not appear to meaningfully impact results: “The unfavorable weather during the month, combined with a challenging economy, generally offset the positive impact of the Easter shift.”
Still, the month was sprinkled with a few bright spots. Gap posted a 20 percent increase in comps as it issued a first-quarter earnings outlook that was nearly double Wall Street’s estimates, reinforcing chairman Donald Fisher’s recent appraisal of ceo Paul Pressler as “the perfect person for the job.” In addition, more niche-oriented specialty stores outpaced the competition. Pacific Sunwear of California saw its comps rise 16.9 percent, Hot Topic’s were up 9 percent and Chico’s FAS ascended 4.7 percent.
Russell Jones, president of Decisive Retail, a consulting firm in Richmond, Va., said retailers’ continued conservatism and a lack of newness left consumers uninspired. “With the uncertainty in the economy and the war, I don’t think consumers should spend money on the same old thing and that is what is out there,” he said. “Consumers have decided they don’t need any more of it.”
What is clear is the consumer remains cautious about discretionary spending. April consumer confidence, as reported, rose to 81 points from 61.4 points in March, but was still well below the 108.5 reading of April 2002, according to The Conference Board. In addition, unemployment stands at 6 percent and, with the savings rate up, consumers clearly have priorities for their money other than buying apparel.
Dana Telsey, a retail analyst with Bear, Stearns, said April sales and traffic comps got somewhat of a lift going into Easter, but it was simply not enough. She warned that inventory levels at the end of the quarter are at the high end of plan, presaging a promotional environment going forward.
“Consumers held their money closer to the vest, as weather negatively impacted spending on warmer clothing,” she said. “The focus on the macroenvironment kept consumers close to their television sets…making fewer trips to the malls and stores.”
The environment for apparel retailers has become increasingly fierce, as the competition from discount and other off-the-mall retailers has grown due to improvements in their offerings.
Overall, the Goldman Sachs monthly index of monthly sales rose 2.4 percent last month compared with a 0.8 percent increase in April 2002 and slightly better than the 2.2 percent expected increase. Again, the discount chains, driven by strength in categories such as food and consumables, paced the sector with a 4.8 percent increase in April, followed by a 4.6 percent jump in specialty stores. However, department stores checked in with a worse-than-expected 5 percent decline, against a 0.7 percent decrease last year.
Among 50 retail firms tracked by WWD, 20 had increases versus 29 with declines and one, TJX Cos., that finished the month flat.
Despite the overall sales misses, Daniel Barry, a broadline analyst with Merrill Lynch, said in a research note that he expects momentum to turn positive in May and beyond, noting Penney’s and Kohl’s pickups in sales during the final week of the month, which featured seasonable weather, easier comparisons and declining anxiety about the Persian Gulf and the economy.
Gap Inc. continued its sales jubilee in April as comps vaulted a better-than-expected 20 percent and all units posted positive monthly tallies: Gap, 23 percent; Old Navy, 20 percent, and Banana Republic, 11 percent. Overall merchandise margins improved over the prior year due to more regular price selling and improved markdown margins.
“Our performance for April shows continued turnaround momentum in our business, particularly at Gap and Old Navy, with customers responding favorably to our summer product and marketing,” the company said.
The company also announced that it expects to report on May 22 first-quarter earnings per share between 19 and 22 cents, nearly double the 11 cents Wall Street analysts are currently expecting.
At Limited Brands, overall comps rose 3 percent and apparel comps extended 2 percent, reflecting a 9 percent comp increase at Bath & Body Works and a 5 percent jump at Express, offset by a 6 percent decrease at Limited stores and a flat performance at Victoria’s Secret. Both B&BW and Express results were above expectations, boosted by incremental customer relationship marketing which targeted lapsed customers at B&BW; and knit tops, pants and casual bottoms at Express. LB said it expects to report a low-single-digit comp increase in May.
Continuing to hang 10, Pacific Sunwear of California said comps surged 16.9 percent in April, with PacSun stores up 16 percent and Demo up 24.9 percent. Women’s and accessories comped up in the strong double digits, and footwear at a double-digit pace, while men’s apparel was up 3 percent.
As reported, Hot Topic and Aeropostale also shared PacSun’s success by reporting 9 and 8 percent comp increases, respectively.
However, few teen retailers enjoyed the same results. All-American Abercrombie & Fitch said its comps declined 3 percent in April, citing that it was less promotional but saw significantly lower transactions per store this April compared with last year.
“Although April benefited from the shift in the Easter calendar, the improvement in the pre-Easter business was not sufficient to offset a very difficult selling environment,” the company said. Women’s continued to perform well, posting positive comps, but not enough to offset the continued weakness in the men’s business.
Other teen retailers posting April comp declines were: American Eagle Outfitters, 1.7 percent; Gadzooks, 3.4 percent, and Wet Seal, 16.9 percent. Wet Seal also warned that, when it reports first-quarter results on May 22, it expects a loss of between 27 and 31 cents a share, based on a comp decline of 25.5 percent. That’s slightly more severe than the 24-cent-a-share loss expected by Wall Street.
Ann Taylor’s 3.2 percent downturn comprised a 6.8 percent drop at AT stores and a 5.7 percent lift at the Loft unit. AT warned it expects to report first-quarter EPS of 39 cents, 1 cent below consensus estimates, on May 14.
Pressured by a late start in spring selling, Kohl’s Corp., most often the darling of the sector, weathered a 4.1 percent comparable-store sales decrease in April. Due to the sluggish sales, the hybrid discounter-department store expects to post first-quarter earnings of about 32 cents a share, 4 cents below analysts’ expectations of 36 cents.
The May Department Stores Co., which operates chains such as Lord & Taylor and Kaufmann’s, comped down 5.6 percent for the month. Weaker-than-anticipated first-quarter sales will keep the firm’s earnings for the three months below Wall Street’s estimate of 20 cents a share, before income tax credits related to the resolution of various federal and state tax issues.
Providing somewhat better news, Federated Department Stores Inc. reported a 1.4 percent comp drop in April, which was better than the 2 to 3 percent depression previously anticipated. The corporate parent of Macy’s and Bloomingdale’s, among others, also reaffirmed its first-quarter earnings-per-share guidance of 14 to 19 cents. Additionally, Federated said it would discontinue its weekly sales updates.
Same-store sales at J.C. Penney Co.’s department stores retreated 6.9 percent.
Sears, Roebuck & Co.’s comps waned 8.5 percent. Within its full-line stores, softlines comped down in the mid-single digits with total apparel comps off by low-single digits.
Dillard’s Inc.’s comps dipped 2 percent. Merchandise categories coming in below the company average were cosmetics, men’s, women’s and juniors.
Saks Inc.’s posted a comp decrease of 2.4 percent for the month, comprising a 9.1 percent falloff at its department stores and a 6.3 percent upswing at the luxury Saks Fifth Avenue unit, which benefited from a promotional event in the month that was held in May last year.
Elsewhere in the luxe world, Nordstrom Inc. comped down 0.3 percent, while The Neiman Marcus Group Inc.’s same-store sales rose 3.2 percent.
Regional department stores also had a tough go of it in April. Among the same-store sales decliners were Gottschalks Inc. (3 percent), The Bon-Ton Stores Inc. (3.7 percent) and The Elder-Beerman Stores Corp. (5.6 percent). Stage Stores Inc. managed a 3.6 percent comp increase, but said first-quarter earnings would come in slightly below its previous low-end estimate of $13.8 million, or 71 cents a diluted share.
Wal-Mart Stores Inc. missed plan in April with a 4.6 percent comparable-store sales increase. The retail giant was looking for a 5 to 7 percent rise overall. By division, the firm’s discount stores picked up 5.1 percent while Sam’s Club inched up 2 percent.
“Both average ticket and traffic were positive for the month, with traffic making up two-thirds of the comp increase,” said a spokeswoman on a recorded call.
Wal-Mart said despite the weaker-than-expected sales, first-quarter profits would be at the high end of its previous guidance calling for 40 to 42 cents a share.
This month, Wal-Mart is looking for same-store sales to rise by 1 to 3 percent.
Target Corp. comped up 3.9 percent last month. The Target discount division rose 5.6 percent, in line with its 4 to 6 percent plan. Same-store sales at Mervyn’s and Marshall Field’s dropped 4.6 percent and 6.3 percent, respectively.
In May, Target expects its discount stores to comp flat to up 2 percent, while the overall company will lag the namesake unit by 1 percentage point.
Off-pricer TJX Cos.’ same-store sales were even with a year ago’s, but were below the firm’s expectations. Better-than-anticipated merchandise margins offset the shortfall, though. “We have been taking advantage of the tremendous buying opportunities in the marketplace,” said president and chief executive officer Edmond English in a statement.
Among other off-pricers, Factory 2-U Stores Inc. comped up 3.7 percent, Value City Department Stores Inc.’s rose 2 percent and Ross Stores Inc. comped down 1 percent. Despite the drop-off, Ross said earnings would exceed Wall Street’s expectations by a penny, hitting roughly 63 cents a share in the first quarter.