Sept. Comps Raise Hopes for Rest of Year

Late Labor Day, early fall weather helped results and even led some stores to lift guidance.

Ross Stores posted an 8 percent same-store sales increase for September.

Less bad was more than good enough for retailers reporting September same-store sales Thursday as cooler weather combined with a later Labor Day, and perhaps even some pent-up demand, to give results a slight lift.

This story first appeared in the October 9, 2009 issue of WWD.  Subscribe Today.

While declines still outnumbered gains, although by a smaller margin, many stores beat their own expectations and those of analysts. A number of companies boosted earnings projections for the third quarter and beyond even as they “anniversaried” the onset of the credit crisis. Aiding the quest for higher profits was a continuing emphasis on inventory control, which some experts fear could put fourth-quarter sales opportunities at risk.

According to a Goldman Sachs September same-store sales composite index, not only did retailers top estimates with a 0.2 percent decline versus a forecasted 2.7 percent drop, but all three retail segments beat projections. September’s showing was the best since a 0.1 percent advance in April.

Wall Street was impressed with the results. The S&P Retail Index rose 6.98 points, or 1.8 percent, to 386.86, its fourth consecutive day of increases, and the comp-store sales data also contributed to smaller gains for the Dow Jones Industrial Average, ahead 0.6 percent to 9,786.87, and the S&P 500, up 0.8 percent to 1,065.48. Adding to the atmosphere of a retail recovery, and to stocks’ upward motion, was a report from the Labor Department that jobless claims last week hit their lowest level since January and were down for the fourth time in five weeks.

Still, the prospects for recovery remain far from certain.

“It’s a pretty low bar at the moment. I hope we’re not all kissing frogs here,” said Alix Partners LLC managing director Matt Katz. “Things are currently improving, but the question is, relative to what?”

Considering last year’s financial fallout, comp-store sales will continue to progress, Katz pointed out, but he expressed concern over apparel sales, with department and specialty stores affected the most.

Until unemployment begins to stabilize, consumers will continue to shop at value-oriented chains such as discounters, drugstores and club stores, he said. “I do not think the macroeconomics are aligned yet.”

In a Retail Forward survey conducted in September, consumers said they would keep their spending plans restrained for the month ahead, as well as for holiday.

“September’s numbers are a good sign that retail sales are on a path to recovery,” said Retail Forward senior economist Frank Badillo. “But it will be a slow, bumpy road as shoppers are cautious about easing the grip on their spending plans. It will take more time for sales declines to turn into gains for all retailers, and not all of them will benefit equally.”

This was evident among upscale department stores Saks Inc. and Neiman Marcus Inc., where declines moderated to 11.6 percent and 17.6 percent, respectively. Nordstrom Inc. topped estimates with a 2.4 percent dip.

While the upper tier struggled, the value channel continued to excel. Same-store sales at mass merchants tracked by WWD rose 2.9 percent, significantly better than September 2008’s 0.6 percent decline.

Off-pricers continued to lead the pack. Ross Stores Inc. boasted the segment’s best results, as the discounter reported an 8 percent gain for the month and lifted third-quarter earnings projections to 75 cents to 77 cents a diluted share, up from 44 cents, and fourth-quarter earnings per share of 88 cents to 94 cents. The TJX. Cos. Inc. posted a 7 percent increase for September and revised its third-quarter outlook to 71 cents to 74 cents a share versus 58 cents a share. Fourth-quarter EPS is expected to be in the range of 60 cents to 66 cents, up from 58 cents.

According to Lazard Capital retail analyst Todd Slater, “Although channel inventory is lean, TJX does not appear to be noticeably lacking any high-quality brands and merchandise. Further, an economic upturn should drive higher discretionary purchases, and with ‘value’ becoming a sustaining paradigm, TJX’s newly acquired customers should stick.”


Despite recording a 1.7 percent decline, Target Corp. said it expects its third-quarter guidance earnings to exceed the FirstCall estimate of 43 cents, thanks to a “stronger-than-expected retail segment” earnings before interest and taxes margin combined with an “improved sales trend.”

Also registering upward guidance revisions were midtier department stores Kohl’s Corp. and J.C. Penney Co. Inc. Kohl’s, the sole gainer among department stores with a 5.5 percent rise, said it anticipated third-quarter EPS of between 52 cents and 54 cents a share, up from between 40 cents and 44 cents. All regions and all lines of business reported comp-store sales increases in September with accessories leading the way, according to Kohl’s.

Penney’s said women’s apparel once again generated the strongest results as the retailer raised third-quarter guidance to a profit of 3 cents to 10 cents a share from an earlier forecast of a loss of 5 cents to a profit of 5 cents. Fine jewelry remained sluggish.

Macy’s Inc. said its comps fell 2.3 percent for the month.

Walter Loeb of Loeb Associates commented, “I think you’ll see department stores beginning to show some strength. Inventory controls are in place and there will be easy comps from last year. In terms of inventory controls, I think you’ll see some shortages of wanted merchandise, which can be interesting because it can bring the customer in to shop earlier. You may see some strong pre-Thanksgiving promotions, but all that will also mean less left over for post-holiday sales.”

He noted stores have added some promotions to reduce merchandise, but the cadence is “more controlled. Solid promotions are being offered around the clock and the consumer is responding to these special events,” he said.

“The department store segment has been uninteresting and not able to inspire the customer,” said Amin Shahidi, vice president of HP Enterprise Services’ consumer and retail industries. He described retailers such as Macy’s and Sears Holdings Corp. as lacking a “brand statement,” despite efforts to develop private and exclusive brands.

“The bets are all in at this point,” he said, as retailers have already ordered their holiday assortments. Stores that are able to chase sales and replenish merchandise the quickest will do the best.

Citigroup retail analyst Kimberly Greenberger agreed, but noted that lean inventories could help “retrain” the consumer to buy full-price merchandise once again, or at least be less patient about waiting for sales.

“We think the story is changing from a price story to a product evolution story,” she said. Of the specialty retailers she covers, only Abercrombie & Fitch Co. “aggressively promoted” last month, while the others ran “normalized sales.”

Calling September’s number “fantastic,” she acknowledged consumers are continuing to show discretionary “restraint,” whereas last year they were “almost in deprivation.” She cited American Eagle Outfitters Inc.’s flat performance for the month versus its 6 percent decline in September 2008.

“I was shocked,” said Greenberger, who estimated a comp decline of between 4 and 6 percent. “This was a case of product execution, not pricing.”

Aéropostale Inc. and Gap Inc.’s Old Navy division brought home the day’s best comps with gains of 19 percent and 13 percent, respectively.

Despite the success of Gap’s denim launch, comps were off 8 percent at its core division, and were down 12 percent at its Banana Republic chain.

Abercrombie & Fitch saw its monthly results decline 18 percent, better than most analysts expected, due largely to a smaller-than-expected 14 percent drop at its namesake division. Hollister, however, disappointed with a 21 percent decrease.

“Irrespective of pricing, it is so much more about fashion for teens than it is about price,” said Majestic Retail analyst Chandi Neubauer. Abercrombie’s problem is that its fashion is “stale” and its pricing tends to be higher, she said, adding that its inventory for sought-after items is too low.

Looking ahead, Lazard’s Slater said October is likely to underperform, and will be similar to September but without the benefit of the Labor Day shift. Most analysts agreed and project holiday as coming in flat to slightly positive, barring rising unemployment.

Still, Slater worried that September’s “very positive news” and upward EPS revisions could be the cause of some “irrational exuberance.”

“Based on our analysis, when retailers beat expectations by a large margin in one month, they usually miss consensus numbers in the following period 71 percent of the time, which simply means that expectations tend to get ahead of themselves pretty quickly,” he said.