U.S. retailers are happy to have the second quarter behind them, but they’re hardly breathing a sigh of relief as they catch their breaths.
A large group of stores reported quarterly earnings on Thursday and even those to emerge relatively unscathed from the persistent promotional pressures of the period were careful to keep their customary optimism about the second half, and particularly holiday, in check. While they plot strategies to mitigate those pressures and avoid price battles, they acknowledged the hair-trigger nature of discounting, whether prompted by direct competition or consumers’ increasing tendency to do their shopping and price comparison online.
The transition from the old world of bricks and mortar to the new one of omnichannel retailing is proving a difficult one for more than a few retailers, none more dramatically, perhaps, than Sears Holdings Corp.
Edward S. Lampert, chairman and chief executive officer, said the company continues to see “increasing engagement from our Shop Your Way members, who drove 73 percent of eligible sales in the quarter. In addition, our [Shop Your Way] Integrated Retail initiatives drove our online and multichannel sales of 18 percent in the quarter and 22 percent in the first half.”
But the bottom line continued to decline. For the three months ended Aug. 2, Sears’ net loss widened to $573 million, or $5.39 a diluted share, versus a net loss a year ago of $194 million, or $1.83. It was the ninth consecutive quarterly loss.
The adjusted loss was $2.87, 24 cents deeper than projected by analysts.
Net sales fell 9.7 percent to $8.01 billion from $8.87 billion. Comparable-store sales at full-line Sears stores grew 0.1 percent from a decline of 0.8 percent a year ago, while comps at Kmart were down 1.7 percent, an improvement from its decrease of 2.1 percent a year ago.
The sales trends at Sears and Kmart remained negative. Sales at Sears fell 9.9 percent to $4.31 billion from $4.78 billion, with $330 million of the decline attributable to the separation of Lands’ End. The gross margin rate declined 330 basis points to 22.6 percent from 25.9 percent due to falls in certain categories such as apparel and footwear. Apparel and soft home sales at Sears fell 31.3 percent to $770 million from $1.12 billion last year.
At Kmart, sales fell 7.7 percent in the quarter to $2.92 billion from $3.17 billion. The gross margin rate fell 250 basis points to 19.9 percent from 22.4 percent, also due to declines in categories such as apparel and home. Sales in the apparel and home category dropped 6.8 percent to $935 million from $1 billion a year ago.
Gap Inc. weathered the promotional climate with tight inventory control in the second quarter, posting a 9.6 percent net income gain.
Gap raised its guidance for full-year profit to a range of $2.95 to $3, from $2.90 to $2.95, based on the sale of a building rather than a change in the outlook, but bullishly cited several growth opportunities.
The net rose to $332 million, or 75 cents a diluted share, 9.6 percent higher than the $303 million, or 64 cents, in the comparable 2013 period. Adjusted earnings per share, excluding the benefit from the building sale, were 70 cents, 1 cent ahead of Wall Street’s estimates.
Sales rose 2.9 percent to $3.98 billion from $3.87 billion a year ago with comparable sales, including e-commerce, flat versus a 5 percent advance in last year’s quarter.
While the company’s rate of revenue increase online slowed to 11 percent, to $515 million, from 27 percent in the year-ago period, chairman and ceo Glenn Murphy stated, “We now believe that personalized content and personalized promotions in our homepage, e-mail and messaging will definitely help the online business going forward.” He noted that Piperlime was relaunched this week, as WWD reported, and that it’s used to test ideas for other brands. Transactions through the reserve-in-store and order-in-store services are credited to stores, impacting the online results.
Murphy, in citing several plans to build the business, said Gap is entering India through a franchise agreement with Arvind Lifestyle Brand Ltd., with the first stores opening in Mumbai and Delhi by summer 2015 and about 40 Gap units planned.
He said changes in the merchandising at Gap brand are just beginning, led by the creative director Rebekka Bay, who teams with Michelle DeMartini, senior vice president of global merchandising. Both moved into their current slots about a year ago.
At Athleta, which sells performance wear with fashion, Murphy said, “It’s amazing how quickly we will get to 100 stores by the end of this year. Athleta fits in all real estate — malls, street, strip center. Nike is the player we look at most and where the share will come for Athleta. It will be our fourth global brand.”
With the opening of the fourth Old Navy in China a few weeks ago, Murphy predicted, “My instinct is Old Navy will have a chance to go deeper into the country than Gap will.”
He also said the corporation is “a little less focused on closures.…We are more focused on the size of the store, downsizing,” and testing what Murphy said would be “a different kind of physical space — a high touch store, with lower square footage and applying omni strategies.”
Gap shares ticked up 1.2 percent to $43.68 in after-hours trading following the disclosure of results. They were up 0.2 percent to $43.18 during the trading session.
The Bon-Ton Stores Inc. led fashion stocks higher today, jumping 12.8 percent to $10.21 despite posting net losses for the second quarter.
The struggling department-store chain, however, saw comparable-store sales rise 1.6 percent. The retailer is now looking for diluted EPS of 25 cents to 55 cents for the full year, ahead of the 17 cents analysts had penciled in.
“We’re very excited by the early reads we are getting on all fall product,” Brendan Hoffman, Bon-Ton’s outgoing president and ceo, told WWD. “We did a better job transitioning into fall by moving up receipts and are pleased by the initial results.”
Bon-Ton reported a net loss of $36.2 million, or $1.86 per diluted share, slightly less than its loss of $37.3 million, or $1.95 a share, for the 2013 quarter. The second quarter of fiscal 2013 results included $3.9 million of debt-extinguishment costs associated with certain senior notes.
Total sales increased 1.1 percent to $563.5 million from $557.1 million in the prior-year period. Bon-Ton’s sales growth was its first in five quarters. Sales were led by Ruff Hewn private brand, contemporary, active, dresses, plus sizes, handbags, bedding and small electronics. E-commerce also continued strong.
Kathryn Bufano, formerly of Belk Inc., succeeds Hoffman next week.
Going forward for fall, Bon-Ton is adding a fifth clearance center, a new private brand called Le Tigre, testing a new cosmetics presentation with additional vendors in 11 doors, opening its first store in Utah, and continuing localization efforts that are benefiting smaller stores in smaller markets the most. “We have to drive top-line sales, we have 264 locations, we need to get more out of them,” Hoffman said in a conference call.
In his return engagement as ceo of Aéropostale Inc., Julian Geiger sounded a hopeful tone as the company posted a smaller loss than expected on sales that exceeded analysts’ estimates.
“Not only for myself, but for the entire corporation, our intent is to make Aéropostale more relevant to the teenage customer,” Geiger said on a late-afternoon conference call.
While better than estimates, the results demonstrated the depth of the retailer’s difficulties.
The net loss nearly doubled to $63.8 million, or 81 cents a diluted share, from a net loss of $33.7 million, or 43 cents, a year ago. Excluding charges, the adjusted net loss was $36 million, or 46 cents a diluted share, in the current quarter, beating Wall Street’s consensus of an EPS loss of 49 cents. Net sales fell 12.7 percent to $396.2 million from $454 million, as comps fell 13 percent on top of the 15 percent decline a year ago.
“I am encouraged that the company was able to achieve higher average unit retails and margins, as well as better expense control during the second quarter, which allowed us to exceed guidance,” Geiger said. “I feel very fortunate to be joining the organization at this time. I believe that, in principle, we are moving in the right direction.”
Geiger said the company will return to profitability not by reverting to merchandise from the past that’s not relevant, but by listening to what its customers want and in adapting to technology such as social-media initiatives.
Shares fell 7.2 percent to $3.63 in after-hours trading following the release of results after a flat performance during regular trading hours.
Like its larger off-price rival, The TJX Cos. Inc., earlier this week, Ross Stores Inc. impressed investors with a strong quarterly performance that lifted its shares 5.9 percent to $73.51 in after-hours trading.
Net income rose 12.4 percent to $239.6 million, or $1.14, from $213.1 million, or 98 cents, in the year-ago period. Analysts expected EPS of $1.08. Sales rose 7 percent to $2.73 billion from $2.55 billion, while same-store sales were up 2 percent and gross margin rose to 28.8 percent from 28.5 percent.
“Our second-quarter sales performed at the high end of our expectations as today’s value-focused consumers continued to respond to our wide assortment of competitive name-brand bargains,” said Barbara Rentler in her first conference call since succeeding Michael Balmuth, vice chairman, as ceo. “Merchandise gross margin was above plan, which coupled with strong expense controls, enabled us to deliver quarterly earnings per share that were above the high end of our guidance.”
Operating margin rose to 14.3 percent from 13.6 percent in the prior-year period.
Ross initiated third-quarter guidance of between 83 cents and 87 cents a share and full-year guidance of $4.18 and $4.26. Prior to the release of second-quarter results, analysts expected third-quarter EPS of 86 cents and full-year EPS of $4.21.
New York & Co. said it had commenced a search for a new chief operating officer following the resignation of Laura Weil as executive vice president and chief operating officer. The company matched analysts’ consensus estimates for a break-even quarter, versus a loss of 4 cents a share in its 2013 counterpart, while sales rose 1.4 percent to $226.1 million from $223.1 million.
Also on Thursday, Stage Stores Inc. and Stein Mart Inc. fell short of earnings expectations while Cato Corp. exceeded them.
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