By  on September 7, 2007

Despite a gloomy looking economic picture, retailers posted better-than-expected August same-store sales Thursday with results racing ahead of analyst estimates.

Within each channel results varied, but overall sales were driven by a late start of back-to-school selling. Analysts warned that August's modest gains may not signal a strong recovery as macroeconomic trends continue to impact consumer spending.

In August, specialty retailers delivered the best performance, with same-store sales gaining 2.9 percent on average. Mass retailers followed with a 2.2 percent average gain, while department stores lagged with a 1.3 percent average gain. More than half of the retail companies tracked by WWD beat expectations in August.

Wall Street viewed the sales reports as a strong positive against lingering woes in the housing market, which included higher mortgage foreclosure rates. The Dow Jones Industrial Average gained 0.4 percent to 13,363.35, while the S&P 500 also rose 0.4 percent, to 1,478.55. The S&P Retail Index shed 0.6 percent to 478.84.

Standouts in August sales included Saks Inc. with an 18.2 percent gain, Zumiez Inc. with a 17.4 percent increase and American Eagle Outfitters Inc. with a 9 percent gain.

Industry observers agreed that August same-store sales surprises could indicate resiliency in consumers despite negative external forces ranging from financial market turmoil and a housing slump to regional flooding and record heat.

"[August results] are encouraging. If we look back on the last month, consider all the tumult going on in the broader markets and economy and headlines and other messages going out to consumers, they seemed to press on," said Chris Donnelly, partner in the retail practice at Accenture. "We continue to be impressed with consumers and their willingness to spend."

"Where there is newness and where there was interesting product, it really sold. That tells you that you have a healthy consumer out there," said Deborah Weinswig, analyst, Citigroup Global Markets. A healthy consumer is a positive after concern over macroeconomics, but shopping patterns really created a number of individual retailer stories for what happened in August, she said.

August's results were decent, showing that "consumers are not all tapped out," said John Lonski, chief economist, Moody's Investor Services. It is noteworthy, he said, that automotive sales also surpassed expectations in August.Overall same-store sales growth improved to 3.2 percent from the prior month, but was weaker than last year, according to TNS Retail Forward. TNS tracks 49 retailers.

"Shoppers were not spooked like stock market investors by fears of a credit crunch. But that only means that the fallout for households will hit home more gradually in the coming months," said Frank Badillo, senior economist and director of the Retail Forward KnowledgeBase.

The luxury department stores, especially Saks and Nordstrom Inc., were widely expected to shine again in August and they did not disappoint. Saks' 18.2 percent increase sailed ahead of a consensus expectation calling for an 8.7 percent gain. Saks said women's shoes, handbags, designer apparel, modern collections and fine jewelry helped drive August sales.

Nordstrom was slightly stronger than expected with a 6.6 percent gain versus a 6.3 percent consensus estimate. That number was a little weaker than last month's gain of 9.4 percent. Neiman Marcus Group Inc. reported a 4.6 percent gain in August, which showed a drop from the previous two months' numbers.

Moderate department stores didn't fare as well as luxury in August, Kohl's Corp. and J.C. Penney Co. Inc. reported declining monthly sales of 0.6 and 4 percent, respectively. J.C. Penney did beat both its own expectations and consensus estimates, but Kohl's drop was unexpected. The company missed expectations that it would gain 3.2 percent.

"Kohl's delivered a real goose egg," said Weinswig.

Macy's Inc. was up 2.4 percent, higher than expected. The company said it expects same-store sales to be down 1 to 3 percent for September and to continue to fluctuate 1 percent up to 1 percent down in the third quarter.

The Bon-Ton Stores Inc. was up 1.3 percent. Dillard's Inc. declined 5 percent, Stage Stores Inc. was down 2.6 percent and Gottschalks Inc. was off by 7.8 percent.

Despite the negativity of the last few months on a macroeconomic scale, sources said stores that were strong on b-t-s categories fared well.

"With consumers and retailers facing macro headwinds of higher gas and food prices, a housing market in decline which has dramatically affected mortgage equity withdrawals, and tightening credit in the wake of the subprime crisis, back-to-school selling still managed to drive better than expected same-store sales," said Ken Perkins, president, Retail Metrics LLC, in a note."August same-store sales, for the most part, blew through our estimates as benefits from calendar shifts, which softened July comps, drove August comps," said Christine Chen, analyst, Needham & Co., about the specialty sector.

B-t-s sales and a shift in tax-free holidays in some key markets were particularly beneficial in the teen specialty sector, with all but Aéropostale Inc. beating the consensus expectations for the month. American Eagle posted a 9 percent increase despite facing a difficult comparison to last year's increase of 11 percent. Consensus estimates predicted a 6.2 percent increase.

Abercrombie & Fitch Co., Buckle Inc. and Pacific Sunwear of California Inc. reported comparable store gains of 6, 16.7 and 9.6 percent, respectively. Aéropostale posted gains of 1.7 percent, lower than the expected 2.2 percent gain.

Women's retailers didn't fare as well. Banana Republic reported a 7 percent increase. Gap was up 2 percent. Old Navy declined 4 percent.

Mass stores posted mixed results as well. The standout figure for the month came from Wal-Mart Stores Inc., which beat expectations and turned in its highest same-store sales gain since February of last year. It was up 2.8 percent, above the 1 percent consensus estimate for August comps. The company said in a statement that sales were driven by b-t-s categories, particularly electronics, school supplies and children's apparel.

Wal-Mart's results, Weinswig said, was the most important data point in the world of broadline retailers. It was especially so coming on the heels of disappointing numbers from Costco Wholesale Corp. that were released a day earlier. In contrast to Wal-Mart, Costco reported its lowest number since November 2002, Weinswig said. The company gained 2 percent and missed estimates of a 5.3 percent increase.

Target Corp. also beat industry expectations with an increase of 6.1 percent. TJX Cos. Inc. and Ross Stores Inc. were both up 4 percent. Executives for both chains said those numbers were at the high end of company guidance. Stein Mart Inc. dropped 5.2 percent.

Despite the surprise of August comps, retailers could face a tough September as they come up against strong numbers from 2006 driven by an unseasonably cool month last year. Macroeconomic trends are also expected to be a factor through the fall."September comparisons are more difficult than August and when coupled with macro headwinds will make it difficult for retailers to generate above trend comps," Perkins said in a note.

How this month will play out is "the $64,000 question," Donnelly said. September's role as a transition month that is neither fully b-t-s or fully holiday-oriented makes it hard to predict.

"The American consumer has been a very resilient force in the economy for a long time," he said. It becomes a question of when gas prices, increases in personal debt, low savings levels and other broader issues could eventually start to trickle down to consumers, he said.

Some sources have taken heart in August's surprising numbers and say, while September and the holiday season may not be wonderful, results could turn out better than previously thought.

"Same-store sales for August suggest consumer spending ought to be able to avoid a recessionary stall. We may have actually seen the bottom for a year-over-year growth of retail chain sales," Lonski said. While the upside of that is restricted by problems with housing, mortgage credit and financial markets, things could be improving. September also brings with it a Fed rate cut, he pointed out, which could impact consumers' discretionary spending as well.


AUGUST SAME-STORE SALES
AUGUSTJULYJUNE
2007200620072007
% Change% Change% Change
DEPARTMENT STORES
Bon-Ton1.3-5.7-7.6-8.0
Dillard’s-5.0-1.0-6.0-1.0
Macy’s2.43.8-1.4-2.7
Gottschalks-7.8-1.1-3.9-4.3
Kohl’s-0.65.20.0-4.9
Neiman Marcus4.64.48.36.4
Nordstrom6.67.19.42.0
J.C. Penney-4.0-0.510.8-1.5
Saks18.25.014.9-5.6
Stage Stores-2.63.8-1.71.4
Average:1.32.12.3-1.8
 
SPECIALTY CHAINS
Abercrombie & Fitch6.06.0-4.02.0
Aeropostale1.73.3-11.90.2
American Eagle9.011.0-6.08.0
Ann Taylor2.91.9-5.0-8.4
Banana Republic7.02.01.06.0
Bath & Body Works1.013.0-2.0-4.0
Buckle16.7-8.57.613.3
Cache7.0-3.06.01.0
Cato2.04.0-5.00.0
The Children’s Place5.012.0-1.0-4.0
Chico’s FAS-9.3-2.6-6.7-7.3
Christopher & Banks2.05.04.03.0
Deb Shops0.2-7.7-2.01.9
Gap (U.S. stores)2.0-11.02.0-9.0
Hot Topic-1.1-6.0-7.4-4.0
Limited Brands 1.0-5.010.06.0
Mothers Work-3.75.0-9.4-5.4
Old Navy-4.0-8.0-18.0-7.0
Pacific Sunwear9.6-9.4-4.64.5
Rite Aid1.03.81.60.7
United Retail-7.03.0-6.0-1.0
Victoria’s Secret0.018.0-4.08.0
WalgreenS6.5N/A7.25.1
Wet Seal1.78.7-7.20.7
Wilsons-0.2-18.5-2.2-9.4
Zumiez17.44.79.713.7
Average:2.90.9-2.10.6
 
MASS MERCHANTS
BJ’s Wholesale Club1.42.31.55.3
Costco2.05.06.05.0
Ross Stores4.03.01.04.0
Stein Mart-5.2-2.8-3.4-2.9
Target6.12.86.13.3
TJX Cos.4.04.05.05.0
Wal-Mart (discount stores)2.82.51.31.6
Average:2.22.42.53.0
 
Tally:
Up30271924
Flat1011
Down12152318
Total43424343
 
SOURCE: COMPANY REPORTS

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