Most Recent Articles In Financial
Latest Financial Articles
- Update: U.S. Markets Drag at Open, Europe Edges Down, Shanghai Recovers
- Hermès Net Gains 17% in H1
- Bebe Narrows Q4 Loss; Will Enter Greater China Market
More Articles By
NEW YORK — Cross your fingers.
This story first appeared in the May 6, 2003 issue of WWD. Subscribe Today.
While April sales seem to have fallen short of expectations, some observers said retail might have finally bottomed out as consumers are reaching for their purses, albeit tentatively.
On the plus side, the war is over, consumer confidence has improved and oil prices are retreating. However, even if a rebound is under way, retailers have what should prove to be a painful exercise later this week.
On Thursday, most major stores will report April sales results. While expectations were high going into the month with Easter’s shift into late April this year, a generally placid consumer thwarted many merchants’ prospects. April also was supposed to make up for shortfalls in the preceding month.
“Most broadline retailers should miss already lowered sales plans in April, as momentum continued [to be] soft, putting quarter sales well below initial muted forecasts,” noted Shari Schwartzman Eberts, analyst for J.P. Morgan Chase & Co., in a research note. “Retailers are running out of excuses for the continued sales weakness, as the war has ended, seasonal weather [has] returned and gas prices are declining.”
And next week, retailers begin to report first-quarter results en masse, which no doubt will be tempered by tepid top lines.
Even the strongest retailers have been feeling pinched lately.
Based on an expected sales slowdown, Merrill Lynch analyst Daniel Barry on Monday shaved 2 cents off his first-quarter earnings estimate on Kohl’s. The analyst is now looking for the firm to post earnings of 35 cents, a penny below Kohl’s guidance of 36 cents.
“Based on weak sales in April for most broadline retailers and comments from vendors that Kohl’s is pushing back product, we believe Kohl’s [comp] sales fell below their 4 to 7 percent plan,” said Barry in a note. He now expects Kohl’s to comp flat to up 2 percent in April.
However, J.C. Penney Co. offered some hope for the immediate future on Monday with news that comparable-store sales in its department stores last week, the start of its fiscal month, were ahead in all merchandise categories. Penney has indicated that April sales trended below its planned low-single-digit decrease.
This month, Penney is looking for a 2 to 3 percent comp gain, a mark it surpassed last week. The best merchandise categories were children’s, shoes, fine jewelry and women’s apparel. Investors drove up shares of the firm 27 cents, or 1.6 percent, to close at $17.50 on the New York Stock Exchange.
A Penney’s spokeswoman noted the firm’s sales were slow in March and April while an anniversary sale — held in April in 2002 — depleted inventories last year and eased comparisons. “We have a better inventory position to meet demand this year for May,” she said.
Smith Barney Citigroup analyst Deborah Weinswig added, “Penney’s spring line looks incredible. [It] just needed the weather to get it moving, but I don’t see a huge pickup at other retailers.”
Weinswig is looking for sales this year to be sluggish in the face of rising unemployment, sinking real-wage growth and the absence of a really hot fashion trend. “The lower gas prices will help,” she noted, though “people are still timid in terms of spending.”
Luckily for retail, this sentiment is not universal.
Shoppers appear to be feeling a little better about the economy and their place in it recently. Last month, consumer confidence hit its highest level this year, reversing four consecutive months of declines.
According to the New York-based Conference Board’s monthly survey of 5,000 households, confidence rallied a better-than-expected 19.6 points to 81 from a downwardly revised 61.4 in March.
“The tone to business in the back half of April and early May is improving,” said A.G. Edwards & Sons analyst Robert Buchanan, drawing on field research in markets across the country. “Sales have gone from anemic to nearly acceptable from a retailer’s point of view. The end of the military phase of the war has lifted consumer spirits and also we continue to see modest growth in buying power. Those two facts, coupled with pent-up demand, are boosting sales right now.”
According to Buchanan’s reading, March comp sales rose 0.1 percent. Paired with an anticipated 2.7 percent increase in April, the last two months have averaged a 1.4 percent upswing.
“That’s the run rate we’ve been at for several months,” he said. “It’s remarkable that the consumer has held up as well as she has for the last seven or eight months despite repeated body blows. That’s probably the bottom. We could see some lift over the next few months.”
While the economy has yet to see any job growth, Buchanan noted that labor productivity growth has allowed firms to adequately compensate people who do have jobs.
Giving his reading of the consumer and the economy, Steven Skinner, a partner in the retail industry group at Accenture, noted, “It just feels like people are getting ready to open their purses.”
Echoing such reasons as the end of the war, lower oil prices and low interest rates, he said, “We actually have the seeds for a positive second half of the year for the economy and retail could be a positive benefactor of that.”
Capital spending by companies, which has been put off so far this year, might be unleashed in the back half, he added.
Talk of a recovery and particularly a second-half bounce, though, has been taken cautiously, given recent experience.
“Retailers are in some kind of a ‘prove-it-to-me’ mode,” said Skinner. “There have been a couple of times when pundits have said the economy is going to turn around. There has always been something to puncture the positive attributes of the economy.”
This is the third or fourth time in the past two years when things have appeared to be shifting for the better economically, he said.
“As long as we don’t get any external events that puncture the positive feeling, the market has to go up,” said Skinner. “This thing has to start turning upward.”