Reports on August retail sales ended on a sour note Thursday as Gap Inc. registered an unexpected decline in its comparable sales for the month.
Gap Inc. saw a 2 percent decline overall, with the Old Navy brand the only unit on the positive side. Old Navy was up 2 percent for the month, while Gap and Banana Republic slid down 6 percent and 2 percent, respectively. The company missed the Thomson Reuters consensus estimate for a 1.6 percent pickup, and all three of its nameplates came in below anticipated levels. Old Navy was expected to report a 3.4 percent increase, Gap a 0.1 percent improvement and Banana Republic a 0.7 percent gain.
Perhaps more ominously, Gap said the August performance at Gap brand “will likely put pressure on the brand’s gross margins in September,” suggesting the sales shortfall would necessitate a more visceral approach to promotions just as retailers and analysts were hoping to see less intensity in discounting strategy. By many accounts, inventory levels moderated last month, opening the door for more stable pricing.
“We’re encouraged by the positive momentum at Old Navy while focused on the necessary steps to drive improved performance across our portfolio of brands in the back half” of the year, said Glenn Murphy, chairman and chief executive officer of the San Francisco-based apparel retailer.
Even with the weak performance from Gap and a number of weaker-than-expected results from other stores remaining in the monthly comp sample, the month, dominated by back-to-school shopping and up against a year-ago performance that showed the first signs of the softening that was to follow, did produce a few promising signs. Thomson Reuters noted that the 5 percent median comp increase, excluding drugstores, was stronger than the 3.9 percent increase expected.
Virtually the entire upside to the month’s numbers, however, came from two companies, L Brands Inc. and Costco Wholesale Corp., which exceeded respective estimates for gains of 4.8 and 2.7 percent with increases of 5 and 7 percent. L Brands’ advance included a 5 percent ascent at Victoria’s Secret stores, 2 points better than projected, and a 4 percent gain at Bath & Body Works, 0.5 points ahead of expectations. Victoria’s Secret’s direct sales were up 8 percent for the month.
Amie Preston, chief investor relations officer, said merchandise margins improved at VS stores in August and that the company expected a low-single-digit comp increase in the current month.
Costco — up 7 percent overall and, excluding gas prices, the same amount for U.S. stores — logged the biggest increase of the comp sample, backing up anecdotal and empirical suggestions of strong performances by warehouse clubs throughout much of the year. August marked the end of Costco’s fiscal year, and it concluded the 52 weeks with a 4 percent comp increase, or 6 percent when gas prices are excluded.
Playing off the start of the National Football League season, Sterne Agee analyst Charles Grom said Costco “remains on its game despite a multiyear string of back-to-back winning seasons.”
“If this were a fantasy football draft, Costco would be the number-one pick,” he wrote in a note to clients.
Although hardly its claim to fame, Costco reported a low-double-digit increase in softlines for the month, with strength in apparel and furniture, among other categories.
Craig Johnson, president of Customer Growth Partners, noted, “Although Costco is a grocery/consumables juggernaut with a small general merchandise caboose, at just above 3.5 percent apparel penetration, they are a $4 billion apparel player, and growing.”
He pointed out that, among the stores reporting, Costco was the only one able to report a double-digit increase in its apparel business.
RetailNext’s monthly analysis of shopping trends at brick-and-mortar stores showed only modest improvement in results for August, with the most noticeable change coming from a swing to the positive in conversion, which rose to a 0.4 percent increase last month after three consecutive months of small declines. Sales were down 4 percent, the smallest decrease since April’s 2.1 percent dip, while traffic was off 7.9 percent, just 0.1 point deeper than the decline in the prior month.
However, average transaction value rose 2 percent, the metric’s smallest increase since RetailNext began making its monthly data public, in April.
Among the other companies failing to meet expectations for the month were teen retailers Zumiez Inc. and The Buckle Inc., up 0.8 and 2 percent, respectively, versus anticipated gains of 1.2 and 2.5 percent, and Stein Mart Inc., up 2.5 percent against an expected increase of 3 percent.
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