By  on June 8, 2007

May same-store sales gave out some mixed signals. Despite higher gasoline prices and a slowdown in the housing market, sales improved overall after a dismal April in which poor weather and the loss of Easter volume cooled comps.

Still, May same-store sales continued to reflect a split between luxury and moderate consumers. Positive results in the department store sector, particularly Saks Fifth Avenue, and at specialty chains were driven primarily by luxury customers. Moderate chains that registered declines, such as Macy's and J.C. Penney Co., and mass retailers such as Wal-Mart Stores Inc., which reported a modest gain, bore most of the impact of macroeconomic factors.

"Individual companies making the right decisions on promotions and displays and inventory will continue to consolidate market shares," said Richard D. Hastings, vice president and senior retail analyst with Bernard Sands. He said the best bets for the future were likely to be wholesale clubs, Kohl's Corp. and luxury and premium specialty retailers that had innovative products, such as Saks, Nordstrom Inc. and Neiman Marcus Group Inc.

As tracked by WWD, sales figures in stores open at least a year in the department store sector fared the best, increasing 5.3 percent. Mass merchants posted a 4.1 percent gain. Specialty stores, held back by widely varied results, posted a 0.5 percent increase.

The results are largely in line with predictions dating from the start of the year that luxury would fare well, the moderate side would show a slowdown and the lower end of the retail industry would lag because of the limited spending ability of core customers, said Kevin Regan, senior managing director and retail specialist at FTI Consulting.

"What we're seeing on a macro level is that sales growth has been slowing for several months,'' Regan said. "We believe the housing sector slowdown has been a key cause. It's obviously affecting some of the key sectors in retail."

The luxury side of retail continues to thrive, which could help insulate the industry from the full effects of current economic pressures, he said. The bulk of discretionary spending for apparel and accessories is still driven by affluent consumers who continue to spend.

May comps were released as U.S. stock markets suffered their biggest losses in three months amid concerns about higher interest rates aimed at curbing inflation.Same-store sales growth as tracked by TNS Retail Forward rebounded to 2.6 percent growth in May, from an April decline of 1.5 percent.

"This provides some evidence that April was a fluke and shoppers aren't ready to check out of this economic cycle," Frank Badillo, senior economist and director of the Retail Forward KnowledgeBase, said in a statement. "As long as job and income growth is sustained, at least for the upper-income households, then that should help offset the impact of high fuel prices, the weak housing market and other drags on the economy."

Department stores were driven mostly by strong numbers from the upscale end of the sector, according to Retail Forward's analysis. The firm said warehouse clubs, drugstores and dollar stores posted better-than-average monthly comps. However, it also noted that apparel and accessories stores, as well as discount department stores, lagged last month.

"Overall, in total, the numbers are decent," said Janet Hoffman, partner in the retail practice Accenture. "Specialty is still having its challenges."

Predictions that consumer spending was slowing could be premature, some industry experts said. The blue-collar consumers most affected by rising gas prices and the cooled housing market have less to spend, but consumers in the top income brackets appear to be unfazed.

"Retailers announced mixed same-store sales results that were an improvement from April, which indicated that the consumer is alive and well," Christine Chen, analyst at Needham Co., said in a note. "While May was important as a barometer for the health of consumer spending, it is the least important month of the second quarter."

Sales strength for the retailers that did well was driven by the right fashions in key categories, Chen said. Dresses, knit tops and shorts were important in May and are expected to be key items during the early back-to-school season, as well, she said.

Luxury stores again provided a bright spot for the department store sector. Saks reported a same-store sales increase of 37.5 percent, beating its guidance of low-double-digit growth for the month as well as analysts' expectations. The company said sales were driven by women's designer sportswear, "gold range" apparel, handbags and women's shoes.May sales at Nordstrom gained 6.3 percent, beating both its guidance for the month and Wall Street's expectations. Analysts said the growth was driven by women's designer apparel and accessories as well as men's designer apparel. Neiman Marcus reported a 6.6 percent increase.

Midtier department stores were less consistent. With the exception of Kohl's, which reported a comps increase of 10.5 percent, the sector lagged.

Macy's sales declined 3.3 percent, compared with its guidance of flat numbers to a drop of 2 percent and the Wall Street consensus of a 1 percent fall. The miss comes in the midst of Macy's challenge to integrate stores acquired in its merger with May Department Stores Co. and efforts to rebrand itself as a national department store chain.

"While we were disappointed with sales in the month of May, the increased promotional marketing support currently being implemented for the Macy's brand is expected to improve sales trends in June and July," Terry Lundgren, chairman, president and chief executive officer, said in a statement.

J.C. Penney and Dillard's Inc. both reported declines of 2 percent for the month.

The mass merchant sector was buoyed by strong performances at the wholesale clubs as well as at Target Corp. and TJX Cos. Inc. Target's same-store sales increased 5.8 percent, and TJX's were up 5 percent. Industry experts said Target still benefits from offering lower prices, but has the added cachet of being seen as a fashion-oriented company, which insulates it from some of the pressure on purely price-driven discounters.

Wal-Mart reported a 0.3 percent increase for its discount stores open at least a year, in line with its guidance, but just under Wall Street's expectations. The discounter said apparel and home merchandise continued to be soft last month, but it expected to see a gradual improvement in those areas in the third quarter that will accelerate in the fourth quarter. The company said its customers' worries about gas prices had increased since the beginning of the year.

BJ's Wholesale Club Inc. and Costco Wholesale Corp. reported increases of 4.1 and 7 percent, respectively.

Specialty retailers also were mixed. American Eagle Outfitters Inc. reported a 5 percent increase in same-store sales, in line with some expectations and below others. The company said in a statement that customers had reacted positively to key categories in the summer assortment in May, helping to drive an improvement in comps over April.Aéropostale said sales gained 1.9 percent. "We controlled our promotional cadence and level of inventory, resulting in gross margin increases over last year," Julian Geiger, chairman and ceo, said in a statement. Geiger said the company believed it was well-positioned moving into the back-to-school selling season.

Abercrombie & Fitch Co. reported a 5 percent decrease. AnnTaylor Stores Corp. was also off, with a 4.6 percent decline. That was an improvement over April, when there was a 12.8 percent decline.

Gap Inc.'s divisions were uneven. The flagship Gap was down 7 percent, Banana Republic increased 3 percent and Old Navy dropped 3 percent. Limited Brands Inc. also reported varied results — a 5 percent boost at Victoria's Secret, a 5 percent rise in total apparel and a 3 percent drop at Bath & Body Works.

The bulk of the summer is expected to show the same mixed results.

"Consumers are still going to be very cautious,'' said Regan of FTI Consulting. "There's nothing out there giving people reason to believe that a turnaround is imminent. There will continue to be moderate growth without anything of consequence causing things to happen one way or the other. I don't see anything causing any pattern changes."

May Same-Store Sales
May
% Change
April % Change
March % Change
DEPARTMENT STORES
2007
2006
2007
2006
Bon-ton
1.2
-4.1
-15.8
-3.8
Dillard's
-2.0
3.0
-14.0
6.0
Gottschalksq
-3.8
2.8
-0.8
1.9
Kohl's
10.5
3.1
-10.5
16.8
Neiman-Marcus
6.6
5.4
1.0
10.2
Nordstrom
6.3
7.8
3.1
15.0
J.C. Penney
-2.0
11.1
-4.7
10.6
Saks Fifth Ave. Enterprises
37.5
0.8
11.7
10.1
Stage Stores
1.7
4.0
-14.8
12.4
Average:
5.3
4.3
-4.7
8.2
 
SPECIALTY CHAINS
Abercrombie & Fitch
-5.0
3.0
15.0
7.0
Aeropostale
1.9
-1.1
-14.0
15.0
American Eagle
5.0
11.0
-10.0
20.0
Ann Taylor
-4.6
12.0
-12.8
6.1
Banana Republic
3.0
3.0
-13.0
8.0
Bath & Body Works
-3.0
12.0
-2.0
15.0
Bebe
-3.0
1.6
-9.0
0.1
Buckle
8.8
-3.8
1.8
10.7
Cache
-2.0
6.0
2.0
0.0
Cato
2.0
-2.0
-21.0
7.0
The Children's Place
4.0
18.0
-2.0
7.0
Chico's FAS
-2.9
7.2
-7.3
5.2
Christopher & Banks
4.0
8.0
-12.0
0.0
Citi Trends
NA
NA
NA
NA
Claire's
NA
4.0
-6.0
8.0
Deb Shops
0.2
1.4
-4.7
6.5
Dress Barn
10
9.0
-6.0
12.0
Gap (U.S. stores)
-7.0
-5.0
-14.0
4.0
Gymboree
NA
24.0
-5.0
9.0
Hot Topic
-6.1
-6.0
-9.1
3.4
Limited Brands (total apparel)
-9.0
6.0
3.0
-7.0
Mothers Work
-3.6
5.5
-14.8
3.6
New York & Company
NA
5.5
-14.8
3.6
Old Navy
-3.0
-8.0
-20.0
10.0
Pacific Sunwear
6.4
-2.6
-16.5
14.1
Rite Aid
1.7
4.0
2.1
3.3
United Retail
4.0
9.0
8.0
11.0
Victoria's Secret
5.0
16.0
-4.0
8.0
Walgreen
6.4
9.8
9.2
8.0
Wet Seal
1.9
-8.3
-9.6
10.9
Wilsons
-25.0
-9.1
-20.0
-16.8
Zumiez
11.2
18.2
3.0
17.0
Average:
0.5
4.2
-7.8
7.1
 
MASS MERCHANTS
BJ's Wholesale Club
4.1
4.2
1.2
5.5
Costco
7.0
9.0
6.0
5.0
Ross Stores
5.0
5.0
-7.0
6.0
Stein Mart
2.5
1.0
-13.9
8.0
Target
5.8
5.7
-6.1
12.0
TJX Cos.
5.0
4.0
-1.0
6.0
Wal-mart (discount stores)
0.3
2.3
-4.6
3.4
Average:
4.2
4.5
-3.6
6.6
Tally:
Up
29
36
10
44
Flat
0
0
0
2
Down
15
12
37
2
Total
44
48
47
48

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