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November’s retail results put even more pressure on December to carry the season, the quarter and the year.
This story first appeared in the December 5, 2008 issue of WWD. Subscribe Today.
A better-than-expected Black Friday at the tail end of the month couldn’t save most stores from double-digit comp declines and in many cases was achieved only through vigorous priming of the promotional pump. That strategy could come back to hurt fourth-quarter earnings. An uncooperative calendar further complicated the scenario, moving post-Thanksgiving shopping days into December and boosting the burden of the calendar year’s final month.
Despite the sales reports, the Standard & Poor’s Retail Index was up better than 4 percent for most of Thursday, only to retreat in the final hour of trading and close ahead 1.5 percent, or 3.85 points, to 266.75. That was better than other stock indices, such as the Dow Jones Industrial Average, which fell 2.5 percent, or 215.45 points, to 8,376.24.
Some explanation for retailing’s strong showing on Wall Street came from Todd Slater, equity analyst at Lazard Capital Markets, who pointed out that 56 percent of retailers exceeded expectations on his “Beat-O-Meter.”
“This is the first time the meter touched above 50 percent in the past six periods, which means that, for the first time in six months, expectations may have finally corrected enough,” he wrote.
Still, his research note began, “November is in, and it’s ugly, as we anticipated.”
Confronted by an ongoing financial crisis, a strengthening U.S. dollar and a recession that finally became official this week, monthly increases were the exception rather than the rule, registered by only eight of the 38 companies tracked by WWD. No department stores managed a comp increase.
“At the very least, Black Friday was a very real wake-up call to the consumer to remind them that Christmas is right around the corner,” said Piper Jaffray retail analyst Neely Tamminga. “There was clearly some pent-up demand,” she said, pointing to sales during Thanksgiving weekend and on Cyber Monday, which brought in $846 million. (Cyber Monday, Dec. 1, fell into the retail month of December.)
But some of the success of Thanksgiving weekend was because of the “dual positives of excessive Black Friday promotions” and “the paycheck cycle,” Tamminga said. Consumers spent more freely because they had more cash on hand going into the weekend, she said. Retailers, coming down from their Black Friday high, are now facing a tight-fisted consumer who in many cases won’t get paid until the 15th — a Monday this year versus a Saturday last year.
Citigroup broadlines analyst Deborah Weinswig agreed, noting that many consumers will wait until the weekend before Christmas, or “Super Saturday,” to do their shopping.
“Consumers will pull back a bit, and then we will see a surge at the end,” she said. An even bigger challenge will need to be confronted after holiday, when retailers face a virtual desert of “shopping appointments” outside of Valentine’s Day and “maybe Easter,” she said.
In such a tough environment, very few are positioned as well as Wal-Mart Stores Inc., Weinswig said.
“They have the wind at their backs,” she said, and the fact that the discount giant sells groceries helps. “At the end of the day, the consumer needs to eat.”
A regular lately in the same-store sales winner’s circle, Wal-Mart exceeded expectations, recording a 3.4 percent rise in comps for its U.S. stores, due partially to “the strength of positive traffic and increases in average ticket,” the company said. B.J.’s Wholesale Corp. also cashed in, putting up a 6.2 percent gain, while Stein Mart Inc. and Target Corp. posted declines of 14.2 and 10.4 percent, respectively.
“You have to be really on message and on brand right now,” said Erin Armendinger, managing director of the Baker Retailing Initiative at the Wharton School.
According to Armendinger, “Target has a mix problem.” Heavily focused on designers, Target does not play the value game as well as Wal-Mart, she said, adding the Minneapolis-based retailer needs to hone its message if it wants to compete.
The TJX Cos. Inc. were down 12 percent on a same-store sales basis during the month, with about half the decline attributable to unfavorable currency translation.
“On a consolidated basis, November comparable-store sales were at the low end of our anticipated range stated,” said president and chief executive officer Carol Meyrowitz, who added, “We continue to be extremely focused on inventory levels with a marketplace that is full of great buying opportunities.”
Once again, the department store sector was the hardest hit. November’s biggest decliner was Kohl’s Corp., which posted a 17.5 percent drop in comps, as low traffic and a shifting calendar hurt the Menomonee Falls, Wis.-based retailer. The company said that it has “incorporated” the focus on value into its “promotional efforts through the end of the year.”
Macy’s Inc. and J.C. Penney Co. Inc. posted 13.3 and 11.9 percent comp declines, respectively, and The Bon-Ton Stores Inc. was down 16 percent. Macy’s emphasized that November and December results should be “viewed together” in light of the “dramatic” calendar shift.
Upscale retailers Nordstrom Inc. and Neiman Marcus Inc. posted comp declines of 15.9 and 11.8 percent, respectively, as New York-based Saks Inc. provided a bright spot despite its 5.2 percent dip in comps.
“I was very impressed with Saks,” said Citigroup’s Weinswig, who was expecting a 20 to 22 percent same-store sales drop. Weinswig said that while November comps “weren’t great,” they still bested her expectations overall.
Specialty retailers were also largely in line with or better than analysts’ expectations. Buckle Inc. posted the biggest comp gain across all sectors, with a 15 percent jump, while lifestyle retailers Pacific Sunwear of California Inc. and Zumiez Inc. reported declines of 10 and 15 percent, respectively. Other same-store sales gainers included American Apparel Inc., with a 6 percent jump, and maternity retailer Mothers Work Inc., which had a 0.6 percent rise. Missy retailer Cato Corp. put up a 2 percent increase.
Pop culture-inspired Hot Topic Inc. posted a 6.5 percent gain in comps, with the retailer’s namesake reporting an 8.2 percent rise to offset sister Torrid’s 1.8 percent decline. According to Boenning & Scattergood retail analyst Holly Guthrie, Hot Topic has “reestablished its ability to connect with the customer, through stronger merchandise and a better grasp on an evolving music landscape and entertainment related themes for teens.” Guided by the success of the movie “Twilight,” the retailer has been able to gain momentum and is expected to continue to progress with its other initiatives and future movies from “Twilight” author Stephanie Meyer’s four-book series, Guthrie said.
Abercrombie & Fitch Co. produced the worst comps of the month, with a 28 percent dip, while rivals Aéropostale Inc. and American Eagle Outfitters Inc. had declines of 5 and 11 percent each.
“I think there are things Abercrombie could be doing better,” said Citigroup specialty retail analyst Kimberly Greenberger.
Unlike most of its competition, Abercrombie has avoided eye-popping price promotions, a strategy used to protect its brand. While this may prove an initial setback in a “promotional environment,” the company’s real problem is that its fashion assortment is “repetitive and stale,” Greenberger said.
While still battling double-digit declines, one company that has stepped up its merchandise selection, along with its marketing initiatives, is Gap Inc., Greenberger said. Gap posted a 10 percent dip in comps with an 11 percent decline in its North American namesake stores, along with a 6 percent drop in the international division. Banana Republic also reported an 11 percent decrease, while value-oriented Old Navy rebounded from months of double-digit declines with a 9 percent fall which, according to Greenberger, was “pretty encouraging” considering its recent performance.
Same-store sales for Limited Brands Inc. decreased 12 percent, with respective declines of 9 and 16 percent from Victoria’s Secret and Bath & Body Works.
Missy retailers struggled, with Caché Inc. reporting an 18 percent dive in comps and rival Chico’s FAS Inc. posting a “disappointing” 15.4 percent dip, according to Greenberger.
Needham & Co. retail analyst Christine Chen said that while Black Friday was a boon to most retailers, the missy sector was short-changed, even though it tended to be “more promotional” last month.
Going into the fourth quarter, retailers will increase their focus on promotions, but she warned that those that have been “giving the store away” are expected to “suffer.”
Among retail stocks, The Talbots Inc. was the breakaway leader, jumping 68.1 percent to $2, despite no new developments at the firm. Showing more modest yet strong increases were AnnTaylor Stores Corp., 15 percent to $5.37; Charming Shoppes Inc., 11.2 percent to $1.19; Tiffany & Co., 10.8 percent to $21.25; J. Crew Group, 10.4 percent to $11.54; Nordstrom, 10.2 percent to $12.01; Sears Holdings Corp., 8.9 percent to $41.04, and Aéropostale, 8.1 percent to $16.15.