NEW YORK — Clearance sales and clearer skies allowed retailers to conclude June with unspectacular sales results but leaner inventory levels.
Results for the month were generally slightly above or in line with expectations as companies enjoyed successful June clearance sales, driven by warmer weather and pent-up demand for summer merchandise.
As a result, many retailers said they are entering July with cleaner inventory levels compared with the start of June, clearing the way for fall deliveries.
“Price drove sales and the ability to manage price efficiently made the difference between good and great retailers,” Richard Jaffe, a retail analyst with UBS, said. “There was a manifest of retailers handling themselves well in a tough environment.”
Among the best pieces of news, he noted, was Gap’s ability to drive units without giving up too much on the margin. Gap Inc.’s comparable-store sales rose 10 percent.
Dana Telsey, an analyst with Bear, Stearns, pointed out that sales gains were strong enough for most retailers to offset the impact of higher markdown rates. “We estimate there was around a 200 basis point acceleration in sales from the first half of the month to the second,” she said. “Business [in June] reflected summer clearance events, and advertising was useful in some instances to drive the business.”
Still, while some retail companies were able to drive sales through aggressive promotions, others, like Kohl’s and Limited Brands, required a more aggressive stance to come out of the quarter clean, cutting into margins and jeopardizing second-quarter earnings. In fact, Kohl’s cut its earnings estimate for the quarter, which concludes at the end of July, to between 30 cents and 32 cents, down from its May forecast of 38 cents to 42 cents.
“The second quarter is going to be tough,” George Strachan, broadlines analyst with Goldman Sachs, said. “Margins are under pressure.”
According to the Goldman Sachs comp index, overall sales rose 1.9 percent in June, an increase from the 1.5 percent in May, but off from the 4.5 percent increase of June 2002. Discounters led the pack, increasing 3.3 percent last month, followed by a 3.1 percent gain at specialty stores and a dip of 2.3 percent at department stores.However, inventories, a point of major concern going into the month, needed to be reduced and that particular mission was accomplished, paving the way for clean stocks and allowing stores to gear up for the vital back-to-school season.
There were a number of bright spots in June, including luxury stores like Neiman Marcus (up 10.3 percent), specialty stores like Chico’s FAS (up 16.5 percent), and teen stores like Pacific Sunwear of California (13.4 percent). More moderate department stores registered declines or more modest increases.
While retail analysts were pleased with the stores’ solid performances in June, they said consumer response to early fall shipments in July would be a key indicator for the second half.
However, Dorothy Lakner, an analyst with CIBC World Markets, which wrapped up its consumer conference in Boston, said she doesn’t believe the retail environment has gotten better, noting she heard more caution than optimism from retailers presenting at the conference. “There was no sense of a lifting of everyone’s spirits or that the consumer is back,” Lakner said. “There are still issues with mall traffic.”
On the other hand, some believe there is a renewed sense of optimism not seen in awhile and retailers are positioned well for the second half.
Steven Skinner, a partner in the retail industry group at Accenture, said he is feeling more upbeat about retailers’ outlooks for the second half than he did about the first half. While momentum is building, he said, “we are not in the area of clear sailing.”
Gap Inc.’s turnaround continued in June, as it reported a 10 percent advance in overall comps, in line with expectations. Old Navy was strongest, with an 11 percent comp gain, but Gap and Banana Republic were ahead 8 percent and 7 percent, respectively.
The company said markdown and promotional activity last month allowed it to reduce its inventory more than expected. It now expects inventory per square foot to increase in the low- to mid-teens by the end of next month, a lower projection than previously issued.
At Limited Brands, total comps rose 5 percent, above expectations, but higher markdowns, mostly at Express, dropped margins down from last year’s levels and below expectations. Apparel comps increased 3 percent. LB inventories ended the month up 2 percent, while apparel inventories ended the month down 11 percent. Promotions helped most units report comps that were higher than expected. Victoria’s Secret was up 7 percent; Bath & Body Works was up 3 percent, and Express up 5 percent, while Limited stores comps were flat.The firm noted June clearance sales were very successful for all its businesses and the summer carryover of apparel inventory is below targeted levels.
Bebe Stores ended June up 3.3 percent, with each week positive. The contemporary specialty firm also notched up its earnings expectations for the fourth quarter, to between 11 and 13 cents a share, from a prior projection of 6 to 9 cents. In June, Bebe sold about 11 percent more units per average store, while the average retail price slipped 8 percent.
In teen retailing, Abercrombie & Fitch said its June comps decreased 5 percent, reflecting its summer clearance events.The company said because it was less promotional earlier in the quarter, it was able to take a somewhat more aggressive approach to its annual June sale event, which helped to offset weak business the first two weeks as well as help improve its seasonal carry-over position. Women’s comps were slightly negative but continued to be better than men’s. Hollister continued its strong performance, reporting double-digit comp gains.
Gadzooks' comps fell 1.6 percent as the company reported a successful liquidation of its men’s merchandise in advance of the conversion to a girls-only concept that was completed on July 6. Continuing its recent struggles, Wet Seal’s comps deteriorated 21.5 percent. American Eagle Outfitters said Wednesday that its comps stumbled 5.3 percent.
Chico’s FAS 16.5 percent increase proved to be the anomaly, as Ann Taylor tracked down 0.2 percent, with AT stores down 2.5 percent and Loft up 2.1 percent; Talbots was off 0.9 percent and Charming Shoppes fell 3 percent.
Kohl’s Corp., undergoing a minor fall from grace in recent months, saw same-store sales dip 2.4 percent in June. “We have been very aggressive in pricing all quarter to clear our seasonal merchandise and be appropriately positioned for back-to-school in August,” said chairman and ceo Larry Montgomery.
Accordingly, the retailer reduced its second-quarter profit expectations to a range of 30 to 32 cents a share, whereas Wall Street had expected 39 cents.Federated Department Stores’ comparable-store sales slid 2 percent for the month, at the low end of its projected 1 to 2 percent drop. The corporate parent of Macy’s and Bloomingdale’s, among others, is looking for July to comp down 1 to 2 percent.
June comps dropped 5.9 percent at May Department Stores, whose nameplates include Lord & Taylor and Filene’s.
J.C. Penney Co.’s department store comps inched up 0.1 percent in June, on strengthening sales later in the month. July comps for the division are planned for flat to up slightly. Second-quarter operating losses for the company are slated to equal the year-ago deficit of 5 cents a share, before charges. Analysts had been looking for a lesser loss of 2 cents per share for the current quarter.
Sears, Roebuck & Co.’s overall comps dropped 1.8 percent for June, though total apparel came in with a flat result. Within the category, women’s comped up in the low-single digits, while men’s fell in the low-single digits. Chairman and ceo Alan Lacy, in a statement, noted, “A stronger promotional stance contributed to improved trends in apparel.” The retailer anticipates an overall same-store sales drop in the low-single digits for July.
Dillard’s Inc. posted a 6 percent comp decrease for the month. Saks Inc. declined 1.8 percent with a 3.7 percent drop at its department stores and a 1.1 percent rise at Saks Fifth Avenue.
Same-store sales at Nordstrom Inc. rose 1.9 percent. The comp leader in the luxury realm, though, was Neiman Marcus Group with a 10.3 percent rise.
Wal-Mart Stores registered a 2.7 percent comparable-store sales rise in June, within the firm’s 2 to 4 percent guidance.
The discount store division comped up 2.4 percent and was outpaced by Sam’s Club, which managed a 4.1 percent increase.
“More seasonally correct temperatures helped to move summer items such as apparel and air conditioners,” said a spokeswoman on a recorded call. “Inventories are still above our goal of growing at half the rate of sales, but the warm weather is helping to bring it back closer to our goal.”For July, the retailer is again looking for an overall comp gain of 2 to 4 percent, though it’s leaning toward the upper end of that range considering current momentum.
Target Corp.’s same-store sales climbed 0.8 percent with a 2.4 percent rise at the discount stores, a 1.9 percent dip at Marshall Field’s and a belly flop at Mervyn’s, which posted a 12.7 percent decline.
The firm’s discount store unit hit its goal of a 1 to 3 percent comp rise, although the rest of the firm was expected to fare somewhat better than it did as it was projected to register comps just 0.5 to 1 percent below the Target division’s mark.
“Given the significance of this month’s contribution to our second-quarter earnings performance, we now expect our most likely EPS outcome in the quarter to be 39 to 40 cents,” said chairman and chief executive Bob Ulrich in a statement. Analysts already had the firm pegged at 40 cents.
In the off-price world, TJX Cos. posted a 2 percent comp increase, but trimmed its second-quarter profit expectations slightly to 23 to 24 cents a share. Ross Stores’ same-store sales were off 2 percent for the month.
ShopKo Stores comped down 1.5 percent in June while Stein Mart posted a 4.9 percent drop.
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