By  on December 3, 2004

NEW YORK — The caution light kept flashing over the holiday season Thursday as retailers reported some of their weakest comp sales gains of the year, despite strong performances at the luxury end.

For many retailers, holiday-related promotions on Black Friday and “Black Saturday” clearly weren’t enough to offset slower consumer spending at the beginning of the month. More importantly, the mass sector, led by Wal-Mart Stores Inc., got hammered in November with comps that were largely disappointing. The weakness of Wal-Mart has set off alarm bells among retail observers, with many wondering whether consumers are finally feeling the pinch of high gas prices and worries over jobs.

While high-end luxury spending at such retailers as Neiman Marcus Group and Saks Inc.’s Saks Fifth Avenue Enterprises continued to grab among the largest shares of the consumer wallet with comps up 8.4 percent and 6.8 percent, respectively, Wal-Mart reported U.S. comps rose only 0.7 percent. Target Corp., however, was a standout in the discount group, posting a 3.2 percent rise, thanks in part to successful Thanksgiving promotions.

Specialty retailers were left in the middle, with American Eagle Outfitters Inc. and Bebe Stores Inc. maintaining their hold on teens’ attention spans, each posting comps above 20 percent, while Pacific Sunwear of California Inc. showed a softer-than-usual 2.7 percent comp advance.

“Overall, the month was one of the weakest in the year, as the low-end was affected by further economic belt tightening brought on by higher home heating costs, while other consumers appear to have learned the ‘discount game’ and are increasingly holding out for later and better discounts,” wrote Eric Beder, senior equity analyst at J.B. Hanauer & Co., in a research report issued Thursday.

“The high-end remains extremely focused and companies offering unique looks and items have remained extremely strong,” he added.

Among the 50 retailers tracked by WWD, 27 posted positive November comps, 21 had negative results, one retailer, Kohl’s Corp., had comps that were flat with the year-earlier period, and another, Rite Aid, reports next week. The luxury sector came in with a 1.8 percent aggregate increase, while specialty stores had a 1.3 percent overall gain and mass merchants posted a 0.1 percent rise.The Goldman Sachs Retail Composite Index posted its second-lowest monthly gain of the year with a 1.2 percent increase in November. That’s down from October’s 4 percent gain and compared with a 3.4 percent advance in November 2003.

Jeffrey Klinefelter, senior research analyst at Piper Jaffray, noted that the combination of weak sales on the day after Black Friday and fewer promotions at certain retailers could have pulled down November’s results.

“Many of the retailers reporting disappointing comps indicated that traffic and sales on the day after Thanksgiving were on plan or better; however, it appears that sales slowed significantly on ‘Black Saturday,’ negatively impacting November sales overall,” Klinefelter wrote in a research report issued on Thursday. Despite several retailers promoting “early bird doorbusters” on Black Friday, November was generally a less promotional month than last year.

In the specialty retail sector, however, it wasn’t a lack of promotions that impacted some retailers’ results. It “had more to do with product…which is going to be interesting because they’re committed to the product [for the holidays],” said Janet Hoffman, a partner in Accenture Ltd.’s retail group.

Ann Taylor Stores Inc., for example, posted an 8.3 percent decrease in November comps, despite a strong promotional environment. By division, comps declined 16.3 percent at Ann Taylor, while Ann Taylor Loft had a 0.8 percent increase.

“We were heavily promotional with our fall merchandise, as planned, but because our holiday assortment was not as well received as anticipated, we accelerated the promotional cadence on select categories, as well. Ivory and neutral product sold well, however our color offering was not well received,” said J. Patrick Spainhour, Ann Taylor’s chairman, in a statement Thursday.

“The trend has been customers wanting much more fashion-forward merchandise, and with [Ann Taylor’s] more classic style, it hasn’t been received well by their customer base,” Kim Picciola, an analyst at Morningstar, explained.

As a result, Ann Taylor severely reduced its fourth-quarter guidance. The new estimate ranges from breakeven to a profit of 4 cents a diluted share from a prior projection of 28 cents to 32 cents a share. December comps are expected to be down in the mid- to high-single-digit range.The department store group also had mixed results. J.C. Penney came in big with a 12 percent comp gain, citing strong promotions in the two days following Thanksgiving. In contrast, Federated Department Stores Inc. and May Department Stores Co. each posted negative comps, with Federated down 1.4 percent and May dropping 7.9 percent.

Federated said Wednesday that Edwin J. Holman, 58, will become chairman and chief executive officer of its Macy’s Central division, based in Atlanta, effective Jan. 10. Holman was ceo of Galyan’s Trading Co. Inc. Before that, he held posts at Bloomingdale’s and the Rich’s/Lazarus/Goldsmith’s division, which has since been renamed Macy’s Central. He will replace David Nichols, 63, who will retire in June.

Looking ahead, December sales seem to be off to a relatively strong start because the $23 billion consumers spent over the Thanksgiving weekend, according to data from trade group National Retail Federation, is split between the November and December reporting periods. Wal-Mart, for example, ended its November reporting period on Black Friday, while Target ended its period on Nov. 27.

An interesting — though not altogether surprising — aspect is that Wal-Mart reduced its December comps estimate to a 1 to 3 percent advance, down from its typical 2 to 4 percent monthly guidance, while Target forecast a December gain of 3 to 5 percent.

Beyond their different promotional cadences, the diverging estimates could be demonstrating that consumers are increasing their desire to spend on differentiated product — something Target has been known for, with its Isaac Mizrahi-designed and -branded merchandise, for example.

“You could look at November’s results and say it’s an affirmation of [Target’s] long-standing approach to differentiate their merchandise and positioning,” said Mark Miller, an analyst at William Blair & Co.

For his part, Miller is less concerned than other analysts that Wal-Mart’s sales could falter during December. “The sales Wal-Mart lost [to Target’s promotions] from Thanksgiving are lower margin sales, so with an eye on profits, I think the season will come in better than it was first predicted,” he said. Sales “could be like what they were last year — strong after Christmas, especially as people redeemed gift cards.”In part because Thanksgiving fell toward the end of November this year and because December has two more selling days than last year, J.B. Hanauer’s Beder called December “the whole ball of wax” for retailers.

“December, as usual, will tell the entire tale,” he said.

November Same-Store Sales

DEPARTMENT STORES
Nov. 2004 % Change
Oct. 2004 % Change
Sept. 2004 % Change
Aug. 2004 % Change
Bon-Ton
5.4
-5.2
-0.1
-4.6
Dillard’s
-3
-5
-3
-5
Federated
-1.4
4
0.1
-2.4
Gottschalks
-8.1
-1.9
6
0.5
Kohl’s
0
6
-1.3
-0.7
May Co.
-7.9
-2.2
-1.5
-6.7
Neiman Marcus
8.4
13.6
6.3
14.7
Nordstrom
3.1
11.5
6.2
7.2
J.C. Penney (dept. stores)
12
2.1
2
3.8
Saks Dept. Store Group
-0.6
5
-10.9
0.9
Saks Fifth Ave. Enterprises
6.8
3.6
5.8
2.9
Sears Roebuck (U.S. stores)
2.8
1.9
-3.2
-6.1
Stage Stores
6
1.8
2.5
8.1
Average:
1.8
2.7
0.7
1
SPECIALTY CHAINS
Abercrombie & Fitch
2
11
2
-5
Aeropostale
4.1
9.1
1.9
6.2
American Eagle (U.S. stores)
24.3
31.7
23.3
26.6
Ann Taylor
-8.3
6.2
1.4
-4.5
Banana Republic
-3
3
6
0
Bebe
23.2
30.6
17.6
9.2
Buckle
-0.4
8.4
0.3
6.7
Cache
3
1
-2
0
Cato
3
5
1
0
Charming Shoppes
3
6
-2
-2
Chico’s FAS
8.6
9.3
5.2
3.6
Christopher & Banks
-3
7
-7
-4
Claire’s
3
9
10
7
Deb Shops
-1.8
3.7
0.9
-2.4
Dress Barn
4
-4
6
0
Gap (U.S. stores)
1
7
-1
0
Goody’s Family Clothing
-0.6
-1.7
-9.1
3.5
Guess
0.5
6.2
13.6
5.9
Hot Topic
-8
-3.8
1.1
-8.7
Limited Brands
-5
1
-5
-2
Mothers Work
-11.6
1
-8.9
-13
Old Navy
-5
4
-6
-1
Pacific Sunwear
2.7
8.5
9.8
3.7
Rite Aid
NA
0.3
2
2.9
Talbots
-0.5
4.7
-1.3
-4.6
United Retail
11
11
6
-2
Walgreens
11.4
8.1
9.3
9.7
Wet Seal
-19.5
-15.5
-8
-14.8
Wilsons
-3.1
9.4
3.7
9
Average:
1.3
6.1
2.4
1
MASS MERCHANTS
Family Dollar
5.2
0.9
1.5
-0.1
Retail Ventures
-5.3
-0.2
-7.3
-4
Ross Stores
-2
4
-5
-8
ShopKo
-4.8
-3.1
-1.2
-0.2
Stein Mart
2
12.3
5.2
2.4
Target (discount stores)
3.2
6
5.6
1.8
TJX
2
7
1
4
Wal-Mart (discount stores)
0.3
2.4
2
0.1
Average:
0.1
3.7
0.2
-0.5
Tally:
Up
27
40
31
23
Flat
1
0
0
5
Down
21
10
19
22
Total
49
50
50
50
SOURCE: COMPANY REPORTS. PARENTHESES INDICATE DECLINES
NA: RITE AID REPORTS NEXT WEEK

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