By  on November 9, 2007

Even Ben Bernanke has weighed in on the holiday season.

The Federal Reserve Chairman said he is somewhat optimistic when it comes to holiday selling. Bernanke testified in front of Congress' Joint Economic Committee on Thursday, saying increased energy prices will cause a rise in inflation. He also does not expect the mortgage crisis to lighten up near term, but amid these economic woes he believes the economy is resilient.

And despite October same-store sales, promises of cleaned-up inventories and reiterated guidance have given Wall Street a glimmer of hope.

Still, October was a tough month. The ongoing credit and foreclosure woes, rising gas prices and unseasonable weather had a negative impact on same-store sales. Given current economic conditions, the mass merchants continued to outperform the pack.

Of the retailers tracked by WWD, the discounters posted an average same-store sales gain of 2.1 percent while department stores and specialty retailers fell 0.7 percent and 2.1 percent, respectively.

The overall weak sales reports pushed the S&P Retail Index down 0.3 percent to 429.36, which was steeper than the broader S&P 500 decline of 0.1 percent to 1,474.77. However, investors liked what they heard from companies in regard to inventory levels and went picking through the channel. As a result, shares of Aéropostale Inc. gained 5 percent to $22.98, Abercrombie & Fitch Co. rose 2.59 percent to $74.50 and Stein Mart Inc. finished the day up 14 percent to $6.33.

The constant media frenzy over the housing crisis and gas prices have made it hard for consumers to ignore these macro issues while shopping, which contributed to last month's weak sales, said Patricia Walker, partner at the consulting firm Accenture.

Unseasonable weather has stifled "wear now" fall and winter apparel, leaving many retailers with excess inventory and forcing early markdowns, according to Retail Metrics. Wal-Mart Stores Inc., J.C. Penney Co. Inc. and Kohl's Corp., among others, have already offered door-buster specials to attract consumer attention and improve weak traffic. But while discounting will play a big part this holiday season, most of the sales were planned promotions.

As part of a commitment to save people money, Wal-Mart kicked off the Christmas season earlier this year with Black Friday prices on five top gift ideas. Similar promotional activity will continue into December. For October, the megaretailer posted a 0.7 percent increase in same-store sales, below analysts' forecast of a 1.1 percent increase.The company said while seasonal categories were soft, its inventory is healthy heading into the holidays. Markdowns as a percentage of sales were still lower than planned for the third quarter, even with major door-buster deals offered this month.

Rival Target Corp. posted a 4.1 percent comps jump, beating analysts' expectations of 2.4 percent growth. "Due to strength in the last week of the month, which benefited from year-over-year Halloween timing, our October comparable-store sales were at the high end of the range provided in our mid-month update," said Bob Ulrich, chairman and chief executive officer, in a statement. "However, for the second straight month, we experienced soft sales in our higher-margin categories." Off-price retailer TJX Cos. Inc. along with wholesale clubs Costco Wholesale Corp. and BJ's Wholesale Club Inc. fared well, climbing 3, 7 and 4.8 percent, respectively.

"The bright spot has been TJX Cos. and the discounters. There is a real opportunity for them to take advantage of canceled orders in the market and provided better quality product to their customers," Walker said.

Midtier department stores Macy's Inc., Kohl's and J.C. Penney were down 1.5, 3.8 and 1.8 percent, respectively, hurt by laggard sales of cold weather apparel. Kohl's slashed its third-quarter outlook to a range of 59 to 60 cents a diluted share, from a previous forecast of 67 to 71 cents a share.

J.C. Penney said it also remains cautious heading into the holidays.

"Although we have seen our customers respond to calendar-related or 'appointment shopping' events, we expect the challenging retail environment to continue for the foreseeable future," said Myron E. Ullman 3rd, chairman and ceo.

Nordstrom Inc. continued to underperform, falling 2.4 percent after lowering its third-quarter guidance last month. But Dana Telsey, president of Telsey Advisory Group, said Nordstrom's issues are completely company-specific and overall the luxury sector remains immune to economic woes.

Saks and Neiman Marcus posted 10.6 percent and 8.5 percent jumps, respectively.

"In each sector, whether it's luxury or teen retailers, it is the stores in the middle that are hurt most. These players are not benefiting from the trade-downs and do not have the brand strength for consumers to make sacrifices for the label like luxury brands," said Christine Chen, retail analyst at Needham & Co.Chen said she is most worried about American Eagle Outfitters Inc., which reported a 3 percent decline. "They are in the unfortunate position of being in the middle. Teens may opt to buy two basics from Aéropostale instead of from Eagle so they can then buy a sweater at Abercrombie & Fitch," she said.

But American Eagle said it is comfortable with its inventory mix and content entering the holiday season.

"What is interesting is most retailers feel confident that they have cleared their inventory going into the holiday season," Walker said. "There are a lot of positive pieces within the negative macro outlook. If you look at small pockets, there are some retailers doing well."

Shares of Gap Inc. are up 5.5 percent, despite negative comps across the board at Old Navy, Banana Republic and Gap stores.

"While comparable-store sales were down in October, merchandise margins were significantly above last year," said Sabrina Simmons, executive vice president of Gap Inc. finance, in a statement. "The results reflect our stated strategy of managing inventory slightly to support margin improvements."

Chen said it is more important to see Gap get its margins right than to post positive comps.

Teen apparel retailers Abercrombie & Fitch Co., Hot Topic Inc. and Pacific Sunwear of California Inc. were down in October. And while Zumiez Inc. grew 5.1 percent, the company missed analysts' expectations of a 6.7 percent gain and cut guidance. The skate and surf company now expects full-year guidance in the range of 92 to 94 cents a diluted share, down from previous guidance of 97 to 99 cents.

"It's all about there being no snow," said analyst Jennifer Black, president of the company bearing her name, in a research note. "The comp-store sales would have been even more had the winter goods comped at the same level as the rest of the store. We believe if the weather cools down and snow comes, the company's sales of winter-related equipment and apparel will pick up."

After reporting a 3 percent jump, Aéropostale raised third-quarter guidance to 46 to 47 cents a diluted share, from 43 to 45 cents a share. "With shoppers trading down, Aéropostale has been able to benefit, stealing market share from American Eagle," Chen said.But women's retailers still can not seem to get it right.

AnnTaylor Stores Corp. and Chico's FAS Inc. reported 4.2 and 10.6 percent declines, respectively. As a result, Ann Taylor tempered its fourth-quarter and full-year outlook, and Chico's said third-quarter earnings would be in the range of 10 to 13 cents a diluted share. Both companies blamed warm weather and declining consumer confidence for their negative results.

% Change% Change% Change
Bon-Ton-3.2 -9.7-7.11.3
Dillard’s -7.0 -5.0-7.0-5.0
Macy’s -1.57.7-2.72.4
Kohl’s-3.84.2 -3.2-0.6
Neiman Marcus
J.C. Penney-1.88.1-4.6-4.0
Stage Stores-2.9-2.52.3-2.6
Abercrombie & Fitch-2.0-3.0-4.06.0
Aéropostale3.05.6 1.31.7
American Eagle-3.08.0 -2.09.0
Ann Taylor -4.2-
Banana Republic -2.02.0 -2.0 7.0
Bath & Body Works -6.014.0-2.0 1.0
Buckle14.96.010.9 16.7
Cato-8.0-5.0 -7.02.0
The Children’s Place2.0 10.0-3.05.0
Chico’s FAS-10.6-4.1-8.3-9.3
Christopher & Banks22.0-
Gap (U.S. stores)-7.0-4.0-10.0 2.0
Hot Topic-4.0 -7.2-2.9 -1.1
Limited Brands-6.00.0-4.01.0
Mothers Work -3.9-5.2 -7.0-3.7
Old Navy-11.0-11.0 -8.0-4.0
Pacific Sunwear-0.8-7.12.7 9.6
Rite Aid0.
Victoria’s Secret -7.014.0 -6.00.0
Walgreens6.911.4 4.76.5
Wet Seal -5.47.5 -7.01.7
Wilsons -21.8-13.5-13.0-0.2
Average:-2.1 1.9 -2.03.4
BJ’s Wholesale Club4.
Costco7.02.0 4.02.0
Ross Stores -
Stein Mart -3.8 -2.2 -9.1 -5.2
Target4.13.91.2 6.1
TJX Cos.
Wal-Mart (discount stores)
Average:2.12.0 0.42.2
Up 14 26 24 30
Flat01 11
Down 2716 1812
Total41 434343

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