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August Comps Rate a D+

NEW YORK — The once all-important back-to-school season has been sent to the back of the class.<br><br>While students were heading back to school, their parents, jittery about the war on terrorism and the shaky stock market, weren’t...

NEW YORK — The once all-important back-to-school season has been sent to the back of the class.

This story first appeared in the September 6, 2002 issue of WWD.  Subscribe Today.

While students were heading back to school, their parents, jittery about the war on terrorism and the shaky stock market, weren’t heading back to the malls. Consequently, the nation’s retailers posted mostly failing grades in their August same-store sales reports.

While there were some rays of light, August comparable-store sales were generally disappointing. Department stores and several specialty stores reported anemic results and even the discounters, including industry darlings Wal-Mart and Target (whose flagship divisions were up 4.3 percent and 0.5 percent, respectively) came in below expectations.

Overall, the Goldman Sachs retail comp index for August notched up 1 percent, down from the 2.7 gain in August 2001 and lower than the 1.3 percent gain that was forecast. The discount channel extended 4 percent versus 5.3 percent last year, while department and specialty stores were both down, 5 percent and 0.6 percent, respectively. Among 50 retailers included in WWD’s compilation of August results, 30 had decreased, two were flat and just 18 comped upward.

“The weak numbers in August are not good,” said Russell Jones, a retail consultant at Cap Gemini Ernst & Young, who wondered aloud if last month’s weakness was a sign of depressed spending ahead or a call for stores to spruce up their fashion assortments. “Consumers are saying, ‘I have my jeans. What else do I need because there is nothing else I see?’”

Many noted that neither fashion in general nor b-t-s apparel in particular is high on consumers’ priority lists at the moment. “It is clear from the reports that the month was miserable for all but a few companies,” Todd Slater, retail analyst at Lazard Frères, said. “Guys that sell apparel are comp-challenged at the moment as consumers have rolled over as unemployment is up and income not rising.”

While back-to-school is an important delivery period for those retailers catering to teenagers, he said, the selling season, like Christmas, has been a dud for many years. “Both [seasons] have been disappointing because clearly consumers are buying product much closer to need and not shopping the way they did traditionally,” he said, the selling season, like Christmas, has been a dud for many years. “Both [seasons] have been disappointing because clearly consumers are buying product much closer to need and not shopping the way they did traditionally,” he said.

American Eagle Outfitters’ chief financial officer Laura Weil agreed that “b-t-s shopping is done closer to need than prior years. During the first two-and-a-half weeks, sales were very soft with the exceptions of early b-t-s markets. In areas where school started in early August, comps were positive for the first three weeks and positive for the month. In the later b-t-s markets, comps improved during the last 10 days of August.”

Even some of August’s bright spots had a minus sign in front of them. Gap posted a 2 percent comp decline last month, its 28th consecutive month with a drop, but Old Navy and Banana Republic comps were flat and its Gap division reported better margins with comps down 4 percent, a marked improvement over last August’s 17 percent plummet.

Still, the August performance was the best of the year for Gap and its strongest showing since a 1 percent drop in November 2000.

Dana Telsey, retail analyst at Bear, Stearns, said: “Traffic was the weak link to the month and it only picked up steam in the back half.” She said although sales got better as schools opened, “consumers were forced to shop and what they found was almost any and all denim jeans on sale and sweaters at promotional prices.” She said even the discounters came in at the low end of plan, suggesting consumers are saving rather than spending.

Obviously, she noted, this environment is not conducive to energetic ordering by retailers.

But while it is clear that August was certainly weaker than expected for most retailers, Dana Cohen, an analyst at Banc of America Securities, said: “It seems there is a consumer slowdown going on, but dollars are being converted into cars and homes, where financing is lower than ever, and everything else is being pulled back.”

Jeffrey Klinefelter, a specialty retail analyst at U.S. Bancorp Piper Jaffray, cautioned against writing back-to-school off. “Anytime you have an event that drives up traffic on a national basis, it is important, regardless if people buy closer to need,” he said. “Everyone is out doing some kind of shopping compared to times when nothing is going on.”

Klinefelter said that August, although of less importance to other retailers, is the second, if not the third, most important month of the year for teen retailers, representing about half of all sales for the third quarter.

“I believe the fall is going to remain tough,” Slater said. “While we are going to see better comp results in September and October due to Sept. 11, I doubt that top-line results will meet expectations for the back half of the year,” he said.

SPECIALTY STORES

Limited Brands reported overall and apparel comps increased 1 percent, at the low end of expectations. Sales of woven tops were strong, offset by weakness in sweaters in all brands. By division, Limited stores blew the rest away as comps rose 17 percent, significantly above expectations, due to a high level of promotions, which negatively impacted margins. At Victoria’s Secrets and Express, its two largest divisions, comps fell below expectations, up 3 percent and down 3 percent, respectively. Lerner’s comped flat while Bath & Body Works were down 2 percent. In September, Limited said it expects comps to be in the high-single-digit range.

Pacific Sunwear of California reported a 12.9 percent comp increase, its best monthly comp performance since September 1998. PacSun comped up 13.1 percent and Demo up 10.3 percent. All merchandise categories gained — men’s, 7 percent; women’s, 17 percent; footwear, 25 percent, and accessories, 16 percent.

Carl Womack, chief financial officer, said on a call that third-quarter earnings will likely exceed current consensus estimates of 37 cents. If September and October comps are slightly positive, then the company expects third-quarter earnings per share would be 40 cents.

American Eagle Outfitters said total comps declined 6.9 percent, including a 5 percent decline at its AE stores in August, versus a 2.1 percent increase last year, and a 27.7 percent decrease at Bluenotes/Thrifty’s, compared with a 4.6 percent decrease last year. AE’s women’s division achieved a positive comp in August.

Chief financial officer Weil said that, if AE owned more inventory in women’s fashion denim in August, she believed the retailer would have achieved a flat comp for the month.

Weil said third-quarter earnings could be 5 to 10 percent higher than Wall Street’s average estimate of 43 cents.

Rival teen chain Abercrombie & Fitch reported a comp decrease of 3 percent as women’s comped slightly negative, but was stronger than men’s. AE’s two-year comp average in August is a 1.5 percent decline versus a 6.5 percent average comp decline at A&F.

Other specialty store winners were Aeropostale, up 6.6 percent; Claire’s, 5 percent; Hot Topic, 5.3 percent, and Chico’s FAS, 13.7 percent.

Decliners included Gadzooks, down 6.4 percent; Talbots, 4.1 percent; Ann Taylor, 7.6 percent; Charming Shoppes, down 1 percent; and Eddie Bauer, down 18 percent.

DEPARTMENT STORES

Continuing to underperform expectations, department stores failed to catch a break in August and, as a sector, experienced the worst that the difficult month had to offer.

Federated Department Stores’ comparable-store sales fell 5.8 percent in August. Initially, the firm projected a 1 to 3 percent comp decrease for the month.

James Zimmerman, chairman and chief executive, noted in a statement, “We did see some improvement in sales trends during the last two weeks of the month, including the Labor Day weekend, which gives us encouragement for achieving a 1 to 3 percent same-store sales increase for the fall.”

May Department Stores Co. endured a steeper 8.6 percent comp decrease during the month.

Discount-department store hybrid Kohl’s Corp. managed a 4 percent same-store improvement for the month. Still far from the end of its retail expansion, Kohl’s added eight new stores in August, bringing its total door count to 428.

Turning in one of the month’s most dismal results, Sears, Roebuck & Co.’s comps dropped 11.1 percent. Apparel sales continued to decrease at a double-digit rate in most merchandise categories. At the Goldman Sachs Global Retailing Conference at the Plaza here Wednesday, Alan Lacy, chairman and chief executive, acknowledged some of the declines were “self-inflicted” as Sears is in the midst of strategic initiatives involving some store disruptions. Also, he noted, “We have clearly gotten very thin on our inventories.”

Same-store sales should continue to be down in the back half of the year with ongoing store disruptions, promotional and merchandise changes and an uncertain economy, he said. On Sunday, Sears will launch its new family-oriented Covington private label brand across its chain.

J.C. Penney Co. posted an above plan 2.9 percent comp increase in its department stores last month. The firm had predicted a flat to slightly positive result.

“All back-to-school apparel categories had comp-store sales increases in the mid- to high-single-digit area,” said a spokesman on a recorded call. “Comparable-department-store inventories were replenished as of the beginning of August and are back on plan, especially in key fashion areas,” added another spokesman.

Comps at Dillard’s Inc. slid 3 percent and were down 4 percent overall. The strongest merchandise categories included women’s and juniors, down 2 percent on a total sales basis, while accessories, shoes and lingerie were off 3 percent. Total sales of men’s apparel waned 5 percent.

Saks Inc.’s total same-store sales slid 3.3 percent. Saks Fifth Avenue showed a 0.3 percent uptick but the department store division posted a 5.6 percent comp drop.

Total comps at the Neiman Marcus Group slid 3 percent. The specialty retail division’s comps slid 5.4 percent with some strength in women’s contemporary sportswear, handbags and shoes as well as men’s sportswear. Nordstrom Inc.’s same-store sales inched up 0.2 percent on a 0.8 percent drop at its full-line stores and a 6.9 percent upswing in its other doors.

The regional department stores suffered along with the rest of the sector with Bon-Ton Stores down 10.7 percent, Elder-Beerman Stores Corp. off 5.4 percent and Gottschalks inching down 1.7 percent.

MASS MERCHANTS

Wal-Mart Stores, the undisputed heavyweight champ of retailing, took a blow on the chin in August, with its overall comparable-store sales increasing a less-than-expected 3.8 percent. The firm was looking for a 4 to 6 percent rise. The flagship division met expectations, also for a 4 to 6 percent increase, with a 4.3 percent uptick.

On a recorded call, a spokeswoman blamed the showing on strong comps last year and unseasonably warm weather last month. “Although back-to-school apparel sales were soft, inventory continues to be in good shape. We are experiencing good sell-through in fashion apparel and believe that we are positioned well to get the business when the weather cools down. The consumer continues to purchase based on need, and traffic accounted for the majority of the sales increase as it has over the past few months. “

The firm again expects comps to rise in the 4 to 6 percent range in September.

Target Corp. also endured a difficult round in August as comps slid 0.1 percent, with a 0.5 percent uptick at its namesake discount stores. Initially, the firm was expecting comps at its discount stores to perk up 2 to 4 percent, with a slightly weaker performance overall. Among the weakest-performing merchandise categories at its discount stores were men’s apparel and jewelry.

The firm expects its Target stores to bounce back in September with a 3 to 5 percent comp increase.

Other value players with declining comps were Factory 2-U Stores (down 10.7 percent), ShopKo (3.9 percent) and Value City Department Stores (5.1 percent).

Ending the summer with comp increases were TJX Cos. (2 percent), Stein Mart (0.6 percent), and Ross Stores, which managed a 6 percent comp increase and raised third-quarter earnings estimates by 2 cents to 54 cents a share.