NEW YORK — Tight inventories limited January clearance activity and same-store sales, but may come back to pay dividends when retailers begin to post fourth-quarter results later this month.
This story first appeared in the February 7, 2003 issue of WWD. Subscribe Today.
Specialty stores were the stand-out segment for the month, while discounters behaved pretty much as expected and department stores occupied the bottom rung of the performance ladder.
“The specialty stores benefited from cold weather and many of the department stores also had a boost from the cold weather in the East,” noted retail consultant Walter Loeb.
However, reduced inventories, which have taken some of the risk out of the retail equation, may also have held back some firms. “Many of the stores took heavy markdowns, but didn’t have the quantities to continue the momentum of the sales,” said Loeb. “As the prospects of war get closer and as people are getting more concerned, they are trying to spend on very basic merchandise. There’s more of an effort by the consumer to start saving.”
Overall Goldman Sachs’ retail composite index rose 1 percent for the month, but was below the projected 1.3 percent uptick. Much of the down side came from the department stores, which as a group fell 3.8 percent, as opposed to the 2.2 percent drop expected by the investment bank. Specialty apparel and off-price stores outperformed with a 3.7 percent rise versus an anticipated 1.7 percent increase. The discounters’ 2.5 percent uptick was slightly below the bank’s expectations for a 2.7 percent advance.
A tally of 50 apparel retailers compiled by WWD found 28 firms comping downward, while one was flat and 21 posted rising same-store sales. The number of stores with down comps rose from 27 last year while falling from 30 in December.
Sales may have been uninspired last month, but some stores —including Wal-Mart, J.C. Penney, Gap and several teen retailers — saw the month’s results as auguring well for fourth-quarter earnings, which in most cases will be released later this month.
The majority of stores, however, saw sales go backward in January. Chains with sliding same-store sales included: Sears, Roebuck & Co. (down 8 percent), May Department Stores Co. (4.4 percent), Ann Taylor Stores Corp. (10.3 percent) and Bebe Stores Inc. (6.9 percent). Christopher & Banks Corp.’s same-store sales slid 9 percent and the firm revised its profit guidance downward.
Wedbush Morgan Securities specialty store analyst Elizabeth Pierce said, “Sales are a little better than people thought for a lot of retailers. I still have concerns given the Easter shift and, while early spring reads were positive for a lot of companies, are there enough data points to really confirm that these emerging trends are being broadly accepted?”
Easter, which brings with it much of spring break sales, falls in April this year, whereas last year it landed in March.
Some of those that did better than expected last month, Pierce added, benefited from having outerwear on the shelves when the mercury fell.
Marcia Aaron, a specialty store analyst at Pacific Growth Equities, said January was “one terrific month” for several stores in the sector, particularly Gap.
She added that strong performances from Hot Topic and Pacific Sunwear in the teen sector were driven by unique merchandise offerings. “They carry smaller brands not sold everywhere.” Continuing strong sales of hoodies are a good sign for PacSun, which is going to be carrying the item year-round, she added.
Steve Skinner, a partner at Accenture’s retail industry group, said, “The month of January was marginally positive,” noting that several retailers, including Wal-Mart, J.C. Penney Co. and Gap Inc. had solid gross margin improvements due to good results in December, which left them with less promotional merchandise to move and, in turn, higher quarterly profits.
Consumers are going to stores, he said, despite an economy that does not seem to be improving. That said, in addition to concerns about a war with Iraq and rising oil prices, Skinner noted that consumers are simply shopping smarter.
A.G. Edwards & Sons Inc. analyst Robert Buchanan noted, “The fourth quarter overall was a disappointment. Our earnings for the industry are only going to be up 5 to 6 percent, much lower than corporate America, which was probably closer to 20 percent.”
Retailers are forced to run their businesses tightly and hope for the best, he said, especially since earnings decelerated in the back half last year, making for little momentum.
Gap Inc. turned a corner in the first month of the year, as the nation’s largest apparel retailer exceeded its expectations in reporting a positive 16 percent comp, reversing last year’s 16 percent decrease in January 2002. All divisions comped upward, led by Old Navy’s 27 percent comp. Banana Republic rose 11 percent and Gap 7 percent.
“Positive customer response to holiday product assortments across all brands helped drive momentum in the month and enabled us to clear merchandise at better markdown margins,” Sabrina Simmons, treasurer, said.
Based on expectations of a lower effective tax rate, Gap anticipates fourth-quarter earnings in the range of 23 to 29 cents. For the full year, Gap expects earnings to be 51 to 57 cents.
At Limited Brands, results were above expectations, increasing 2 percent in January, driven by stronger-than-expected results at Victoria’s Secret, which delivered an 11 percent comp increase. Bath & Body Works comped below expectations, off 6 percent. With Express down 3 percent and Limited flat, LB’s apparel brands comped down 2 percent. At Express, women’s sales fell below expectations, driven by disappointing results in tops and bottoms. The company projected flat February comps.
Benefitting from holiday clearance activity, strength in cold weather apparel and the redemption of gift certificates, many teen retailers posted strong results, despite Wet Seal’s 25.1 percent comp decline and the dismissal of chief executive officer Kathy Bronstein.
American Eagle Outfitters reported a 3.2 percent comp increase in January, slightly ahead of projections, and a 2.2 percent increase on a consolidated basis, including an 11 percent decrease at its Bluenotes/Thriftys stores. AE endorsed First Call earnings estimates for the fourth quarter of 53 cents. Laura Weil, chief financial officer, said that, unlike its hard-hit men’s group, its women’s division continued to show strength, comping upward in the high-single digits. Top sellers included graphic T-shirts, denim skirts, woven shirts, underwear and outerwear.
Comps increased at Abercrombie & Fitch by 3 percent, reflecting strong sell-throughs of winter clearance merchandise as well as good spring sales. Like AE, women’s comps were strongly positive, led by woven shirts, pants, shorts and knit tops, offset by negative comps in its men’s division. The company said its Hollister business was strong during January.
Aeropostale saw a comp gain of 4.6 percent and raised fourth-quarter guidance to between 44 and 46 cents from 38 to 40 cents.
Continuing their recent domination of teens demanding differentiated merchandise, Hot Topic and Pacific Sunwear of California reported double-digit increases in January same-store sales of 13.7 percent and 20.4 percent, respectively. PacSun stores’ comps increased 18.7 percent and Demo was up 32.8 percent. Both teen retailers said they expect significantly higher earnings per share in the fourth quarter: PacSun, 44 cents compared with 29 cents reported last year, and HT, 49 cents compared with 38 cents reported in 2001.
Like Wet Seal, Bebe apparently missed its customers’ fashion mark and reported a 6.9 percent slide in its January comps. Catering to the missy customer in recent months has proven challenging, as the retailers who serve them reported mixed results. Ann Taylor was down 10.3 percent as AT stores fell 9.6 percent and Loft was down 12.2 percent. Talbot’s and Christopher & Banks reported decreases of 2.9 percent and 9 percent, respectively, while Chico’s FAS increased 8.1 percent.
It was another tough month for the department stores.
May Department Stores Co., parent of Lord & Taylor and Hecht’s, among others, recorded a 4.4 percent dip in its same-store sales for January.
Federated Department Stores’ comparable-store sales slid 1.2 percent. Fourth-quarter comps for the parent of Macy’s and Bloomingdale’s, among others, fell 3.9 percent. Annually, the firm’s sales dropped 3 percent.
Department store-discounter hybrid Kohl’s Corp. was stronger with a 5.5 percent comp gain. The pressure the 457-door retailer puts on the sector is only expected to increase with 80 new stores being added this year, many in new markets.
J.C. Penney Co.’s department store comps decreased 3.8 percent in January, and were below plan due to lower levels of end-of-the-season clearances merchandise after strong sales in the preceding month. Earnings per share for the fourth quarter are expected to reach at least 65 cents a share, above analysts’ consensus estimates of 63 cents.
Sears, Roebuck & Co.’s comps dropped 8 percent. The retailer said its first-quarter earnings per share will be in the 50-65 cent range, considerably lower than Wall Street’s estimates calling for 87 cents.
Same-store sales at Dillard’s Inc. fell 5 percent for the month.
Overall, Saks Inc.’s comps slid 2.1 percent. This was the product of a flat showing in the firm’s department store group and a 4.7 percent drop in its luxury Saks Fifth Avenue unit, which reflects lower levels of clearance merchandise than a year ago.
Neiman Marcus Group’s comps fell 2.8 percent, which will make for a flat result in the firm’s fiscal second quarter.
Same-store sales at Nordstrom inched up 0.8 percent. Fourth-quarter comps, on a calendar basis, are expected to rise by 1.9 percent.
Regional department stores with comp gains included Bon-Ton Stores (8.9 percent), Elder-Beerman Stores (4.7 percent) and Gottschalks Inc. (2 percent). Stage Stores’ same-store sales slid 5.2 percent for the month.
Super Bowl Sunday made for less-than-super January sales at Wal-Mart Stores, but the company did manage to comp at the low end of its forecast.
The Bentonville, Ark.-based firm reported January same-store sales rose 2.6 percent, while Sam’s Club comps notched up 0.9 percent. Sales tapered off the last week of the month, which caused the shortfall.
“January sales were at the low end of our guidance due to a softer-than-expected fourth week,” said a Wal-Mart spokeswoman on a recorded call. “Our forecast included an adjustment for the flip in the Super Bowl. It moved by one week, but apparently [we] understated the true impact.”
In better news, January’s arctic blast did help sell-throughs of winter-related items, Wal-Mart said.
In conjunction with January comps, Wal-Mart upped its full-year EPS guidance to $1.80 from $1.78, and analysts at Goldman, Sachs & Co. followed suit 2 cents to the same figure.
For February, Wal-Mart said it anticipates a 3 to 5 percent same-store sales gain at the Wal-Mart division, and a more modest 2 to 4 percent increase for its overall U.S. retail operations.
January was far less kind to Target Corp., where the company’s overall same-store sales slipped 0.4 percent. The Target division’s 0.3 percent comp increase was offset by a 2.6 drop at Marshall Field’s and an even greater 6.6 percent decline at Mervyn’s.
“Sales for the corporation were below plan in January,” said ceo Bob Ulrich in a statement. “Although our sales momentum is relatively weak, our financial performance for 2002 remains on track due to continued strength in our gross margin rate performance and substantial growth in contribution from our credit card operations.”
TJX Cos. also had a rough month as same-store sales were down 2 percent. In a statement, ceo Edmond English attributed the below-forecast performance to unusually cold weather throughout the Southeast and Mid-Atlantic regions of the country. Ross Stores likewise comped down 2 percent.
Other mass players who experienced comp-store slides included Value City Department Stores, which fell 6.4 percent; Factory 2-U Stores, which declined 4.7 percent, and ShopKo, which saw comps recede 2.6 percent.