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Comps Fall Short in Sluggish July

Weak consumer traffic caused the majority of apparel retailers to miss same-store sales expectations for July, particularly in the teen sector, but department stores and discounters continued to outperform.

Weak consumer traffic caused the majority of apparel retailers to miss same-store sales expectations for July, particularly in the teen sector, but department stores and discounters continued to outperform.

As tracked by WWD, mass merchants posted an average gain of 2.5 percent and department stores increased 2.3 percent, but the specialty sector fell by 2 percent.

Meanwhile, macroeconomic trends hammered the market on Thursday as concerns over credit markets and subprime mortgages continued to dog stocks. The Dow Jones Industrial Average plummeted more than 387 points, or 2.8 percent, to close at 13,270.68. The Standard & Poor’s 500 index fell 44.40, or about 3 percent, to 1,453.09.

A number of retail stocks succumbed to the larger market trend and closed the day down. Those companies included Wal-Mart Stores Inc., Target Corp., Macy’s Inc., Nordstrom Inc. and J.C. Penney Co. Inc.

Several retailers cited the shift of back-to-school, driven by later school start dates, as the cause of soft comp-store sales. American Eagle Outfitters Inc., Abercrombie & Fitch Co. and Aéropostale Inc. all did much worse than expected, posting declines of 6, 4 and 11.9 percent, respectively.

The specialty sector posted soft results for the month, with more than half of specialty chains posting declining same-store sales.

Teen retailers fared the worst, missing expectations that were already lowered in anticipation of soft sales in July. In the days leading up to the release of sales numbers, analysts’ estimates had dropped precipitously. The actual numbers reported Thursday show the segment “cratered” said Retail Metrics’ Ken Perkins in a note.

“These very weak results are [because] of some calendar shifts as well as later back-to-school starts, but the extent of the weakness may cause some concern about the back-to-school selling season which lies before us,” Perkins said.

The teen sector, and other stores that lagged in July, could also be suffering from a lack of fashion newness, Donald Soares of Capgemini’s retail practice pointed out.

Bright spots in July came from better-than-expected results in the department store sector, discounters and at warehouse clubs. Neiman Marcus Group Inc., Nordstrom, Saks Inc. and J.C. Penney posted comp gains of 8.3, 9.4, 14.9 and 10.8 percent, respectively, and all met or exceeded consensus estimates. Target reported a 6.1 percent increase. Wal-Mart’s discount stores climbed 1.3 percent, beating expectations that it would only increase 0.9 percent.

Neiman Marcus also released preliminary annual revenues Thursday. The company reported total revenues of $4.4 billion, up 8.9 percent over last year. Comp-store sales for the 52-week period increased 6.7 percent over last year.

“Department store comps mostly beat consensus. Broadly speaking, we were also encouraged by other broadline retail results, and though specialty apparel was a little light on July sales, markdowns appear to be relatively in check,” said Michelle Tan, analyst, UBS, in a note.

In general, July tends to be a transitional month, characterized by early b-t-s and a clearing out of summer merchandise.

“As we have noted earlier this year, a consumer ‘soft patch’ began in February 2007 and the latest data suggested it continued through July,” said Michael Niemira, chief economist and director of research for the International Council of Shopping Centers Inc. ICSC’s same-store sales figures for chain stores increased 2.6 percent year-over-year in July. Housing market issues continue to drag consumer demand down, Niemira said. “Shoppers might feel some relief from high gasoline prices, but it’s unlikely to generate much of a bounce in back-to-school spending and beyond. The looming credit crunch is among the forces likely to dampen spending going forward,” said Frank Badillo, senior economist for TNS Retail Forward and director of the Retail Forward KnowledgeBase.

“I don’t think these results in July indicate that the whole fall season is lost,” said Howard Tubin, director of equity research, RBC Capital Markets. Despite the comps misses, earnings are intact, inventory is in a good position and it remains to be seen what the shift of b-t-s sales into August will do for the season overall, he said.

Teen retailers weren’t the only ones to fare badly. Women’s apparel retailers didn’t do well either. AnnTaylor Stores Corp. was down 5 percent, at the lowest end of analyst expectations and well below consensus estimates of a 2.6 percent decline.

Results at Gap Inc. were mixed. Old Navy comps dropped 18 percent, well below consensus estimates that expected a 7 percent drop. Banana Republic posted a 1 percent increase, but also missed expectations that it would gain 2 percent. The Gap division increased same-store sales by 2 percent, beating a predicted decline of 3.3 percent.

Limited Stores had a 10 percent increase in comps, while results at Bath & Body Works and Victoria’s Secret declined 2 and 4 percent,

respectively.

Department stores posted a solid July. UBS’ Tan pointed out that Nordstrom and Saks both posted strong gains, J.C. Penney and Macy’s were both on plan, and Kohl’s Corp., though light on sales, reiterated its earnings guidance.

In particular, she said, Nordstrom’s Anniversary Sale, which previews fall merchandise, was “highly successful.” Historically the sale has been a good indicator of business trends in the fall, she said.

“Nordstrom’s stunning 9.4 percent comp for July, with a 7.9 percent comp for its Anniversary sale — as well as big comps from other high-end department stores (8.3 percent at Neiman Marcus, 14.9 percent comps at Saks) — validates our view that the affluent consumer continues to shop, driven by luxury and contemporary brands,” said analyst Dorothy Lakner, CIBC, in a note.

Saks’ 14.9 percent gain also beat expectations. Analysts expected the company to report a comp increase of 10.6 percent.

Macy’s was among the department stores that declined, reporting a drop of 1.4 percent. The results were slightly better than expected; analysts predicted the company would post a 2.1 percent decline. Macy’s continues to struggle more than the luxury department stores due to its reliance on struggling categories like home appliances and home decor and its middle-income consumer base, analysts said.

Other department stores also reported declines. The Bon-Ton Stores Inc., Dillard’s Inc., Gottschalks Inc. and Stage Stores Inc. saw results down 7.6, 6, 3.9 and 1.7, respectively.

Among the mass merchants, all posted positive same-store sales with the exception of Stein Mart Inc. TJX Cos. Inc. reported a comps gain of 5 percent and Ross Stores Inc. was up 1 percent, but missed company projections. Stein Mart reported a decline of 3.4 percent for the month.

Among the warehouse clubs, Costco Wholesale Corp. was up 6 percent. BJ’s Wholesale Club Inc. was up 1.5 percent, but missed projected estimates that it would grow 3.3 percent in July. Sam’s Club beat expectations to post a 5.1 percent increase.

Overall, analysts said, August will be a stronger indicator of the success of this year’s b-t-s season and the resilience of consumer spending for the second half.

“Looking forward to August sales results, we expect industry comp-store sales will increase by 2 to 2.5 percent, which is largely a continuation of the recent trend,” ICSC’s Niemira said.


JULY SAME-STORE SALES
JULY 2007 %Change
JULY 2006 %Change
JUNE 2007 %Change
MAY 2007 %Change
DEPARTMENT STORES
Bon-Ton
-7.6

12.2

-8.0
1.2
Dillard’s
-6.0
-3.0
-1.0
-2.0
Macy’s
-1.4
3.3
-2.7
-3.3
Gottschalks
-3.9
-0.7
-4.3
-3.8
Kohl’s
0.0
5.9
-4.9
10.5
Neiman Marcus
8.9
8.6
6.4
6.6
Nordstrom
9.4
5.3
2.0
6.3
J.C. Penney
10.8
4.9
-1.5
-2.0
Saks
14.9
3.4
-5.6
37.5
Stage Stores
-1.7
3.5
1.4
1.7
AVERAGE:
2.3
4.3
-1.8
5.3
 
 
 
SPECIALTY CHAINS
 
 
Abercrombie & Fitch
-4.0
3.0
2.0
-5.0
Aeropostale
-11.9
-1.9
0.2
1.9
American Eagle
-6.0
7.0
8.0
5.0
Ann Taylor
-5.0
5.1
-8.4

-4.6

Banana Republic
1.0
0.0
6.0
3.0
Bath & Body Works
-2.0
16.0
-4.0
-3.0
Bebe
-6.3
10.0
-5.4
-3.0
Buckle
7.6
-7.6
13..3
8.8
Cache
6.0
2.0
1.0
-2.0
Cato
-5.0
1.0
0.0
2.0
The Children’s Place
-1.0
15.0
-4.0
4.0
Chico’s FAS
-6.7
4.9
-7.3
-2.9
Christopher & Banks
4.0
10.0
3.0
4.0
Deb Shops
-2.0
-9.6
1.9
0.2
Dress Barn
3.0
5.0
2.0
10.0
Gap (U.S. stores)
2.0
-13.0
-9.0
-7.0
Hot Topic
-7.4
-7.2
-4.0
-6.1
Limited Brands (Total Apparel)
10.0
-10.0
6.0
5.0
Mothers Work
-9.4
3.9
-5.4
-3.6
Old Navy
-18.0
0.0
-7.0
-3.0
Pacific Sunwear
-4.6
-10.6
4.5
6.4
Rite Aid
1.6
4.1
0.7
1.7
United Retail
-6.0
4.0
-1.0
4.0
Victoria’s Secret
-4.0
13.0
8.0
5.0
Walgreen
7.2
9.7
5.1
6.4
Wet Seal
-7.2
6.4
0.7
1.9
Wilsons
-2.2
-18.3
-9.4
-25.0
Zumiez
9.7
8.4
13.7
11.2
AVERAGE:
-2.0
1.8
0.4
0.5
 
 
 
MASS MERCHANTS
 
 
BJ’s Wholesale Club
1.5
1.9
5.3
4.1
Costco
6.0
4.0
5.0
7.0
Ross Stores
1.0
7.0
4.0
5.0
Stein Mart
-3.4
5.2
-2.9
2.5
Target
6.1
5.5
3.3
5.8
TJX Cos.
5.0
1.0
5.0
5.0
 Wal-Mart (Discount Stores)
1.3
4.2
1.6
0.3
AVERAGE:
2.5
4.1
3.0
4.2
 
 
 
 
 
TALLY:
 
 
 
 
Up
20
33
25
30
Flat
1
2
1
0
Down
24
10
19
15
TOTAL
45
45
45
45