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Luxe Continues Rebound As High End Tops Comps, Dwarfing Middle Ground

The high-end crowd sustained its strong performance in October, but much of the rest of retail simply was unable to keep up September’s strong pace.

NEW YORK — The better did best.

The luxury and designer crowds sustained their strong performance in October, but much of the rest of the retail marketplace simply was unable to keep up the strong pace set in September.

Leading the way, Saks Fifth Avenue Enterprises logged a 14.2 percent increase last month. But its performance, in the final month of the stewardship of chief executive officer Christina Johnson, stood in vivid contrast to the Saks Department Store Group, which, with a 2.1 percent decrease, shared the unfortunate lot of many moderate department stores.

Neiman Marcus Group was up 9.7 percent for the month, following its 13.6 percent gain last month, and Nordstrom managed a 3.5 percent rally.

Halloween supplied a volume treat to a number of stores, such as Wal-Mart and Hot Topic. The strong reaction to the October holiday left many optimistic, or at least hopeful, that upbeat predictions for the Christmas season can still be realized.

But, after a strong September, last month — characterized by weather more fitting for shorts than sweaters, as well as by California wildfires — was a letdown, one that left analysts searching for explanations.

“I hate to give credence to weather, but the weakness in cold-weather products was so widespread this month it is hard to ignore,” Dawn Stoner, a specialty retail analyst with Pacific Growth Equities, said. “When companies like Pacific Sunwear of California, which has been knocking the cover off the ball month after month, see comps in guys’ fleece positive 30 in September to negative 2 in October, you have to think there is something external going on.”

Of the 50 companies monitored by WWD, only slightly more than a third — 17 — finished October with increases, one was flat and 32 had decreases, the worst performance by the group since last March.

Overall, the Goldman Sachs October monthly index of same-store sales inched up 2.4 percent, below the 3.1 percent expected and the 2.5 percent reported last year. Dominated by Wal-Mart and its strong Halloween results, discount stores were the only group to post positive results, increasing 5.3 percent versus GS’ 5.1 percent estimate and last October’s 4.3 percent increase.

Specialty stores fell 0.9 percent, under the 1.3 percent drop forecast and well below October 2002’s 5.2 percent increase. Department stores were off 3.2 percent, worse than the 0.4 percent drop expected.

Despite softness in sales, most retailers planned their inventories lean, as has been the case for the past two years, allowing many to boast about flat-to-improving margins.

Janet Hoffman, a partner with Accenture’s retail practice, wasn’t alarmed by October’s softness. “It was a big disappointment in terms of the momentum we have seen in July, August and September,” she said, “but I am optimistic about sales holding through the holiday season.”

While discounters’ results have contracted a bit, she noted that luxury retailers again are advancing. Firms like Neiman’s, Saks and Nordstrom, she noted, are hitting the mark by leveraging superior customer knowledge with the right product, merchandise flow and service levels.

“When people get back in a position to have more optimism in terms of where they can spend their money, they tend to go to the places that know their profile,” Hoffman said.

Dana Telsey, specialty and luxury retail analyst with Bear Stearns, said October comps rose 3.5 percent, versus a 3.6 percent gain last October, and were the weakest since March, when retail sales rose 0.2 percent. That compares with the 6.2 percent gain in September.

Looking ahead, November and December should be aided by easier year-ago comps. “Overall, I think holiday 2003 seems like a more festive holiday season than we had in 2001 and ’02,” Telsey said.

Elizabeth Pierce, an analyst with Sanders Morris Harris, said she expected October to come in lean because some business from the month wound up migrating into a stronger September.

“Consumers were taking a bit of a breather,” Pierce said. “It could mean they will regroup for holiday.

DEPARTMENT STORES

Better department stores floated above the undertow of receding comps to post impressive gains yet again. Neiman Marcus Group extended its winning streak, with a 9.7 percent comp increase. With the exception of March, Neiman has now comped up every month this calendar year, and with October’s results, just missed posting double-digit same-store sales growth for the fourth time in five months.

Nordstrom likewise maintained its momentum as comps improved 3.5 percent. The retailer now boasts six straight months of positive same-store sales since it reported a 0.3 percent decline in April. Women’s designer apparel, cosmetics, accessories, shoes and men’s wear fueled the better results, Nordstrom said.

Christina Johnson ended her tenure as ceo of Saks Fifth Avenue Enterprises with an impressive flourish as comps shot up 14.2 percent on a wide range of items. However, its brother division at Saks Inc., Saks Department Store Group, fared much like the rest of the sector with a 2.1 percent same-store sales decline.

Taken together, the department stores’ comps partially offset the stunning results from Saks Fifth Avenue to produce a 4.1 percent gain in consolidated same-store sales.

As was more common in October, May Department Stores Co. said comps fell 4.2 percent. Excluding the 32 Lord & Taylor doors May will shutter, comps decreased a more moderate 3.5 percent. Federated Department Stores also had a difficult month as same-store sales dropped 2 percent, which missed the company’s outlook for comps to be flat to up slightly. The parent of Macy’s and Bloomingdale’s, among other nameplates, said the usual suspects — unseasonably warm weather, the Southern California wild fires and cannibalization from strong September sales — were largely to blame.

The major national moderate chains weren’t immune to the vicissitudes of October either, as Sears, Roebuck & Co. and J.C. Penney Co. said their department stores’ comps slipped 2.7 percent and 2.3 percent, respectively. Hardline goods were a bright spot for Sears, while fine jewelry performed well for Penney.

Hybrid retailer Kohl’s Corp. was particularly hard hit last month, recording an 11.6 percent plunge in same-store sales. Regional chains also suffered, with Dillard’s comping down 5 percent and Gottschalks falling 5.8 percent. Meanwhile, Bon-Ton Stores, which acquired Elder-Beerman Stores Corp. on Oct. 24, said comps declined 7 percent. Bon-Ton said its results did not include EB’s comps, which were not reported.

SPECIALTY STORES

October 2003 ended on a positive note for Gap Inc. The specialty retailing giant reported a 1 percent comp increase, with Banana Republic and Gap stores posting increases of 11 percent and 1 percent, respectively, offsetting a 4 percent decrease at Old Navy.

“October was a transitional month and all brands worked to clear out remaining fall merchandise in preparation of the new holiday product,” the company said. “We are pleased that we were able to move through the inventory we expected, achieving overall merchandise margins that were higher than last year.”

Limited Brands said total comps dipped 2 percent from last year’s month while merchandise margins were flat. Express’ comps fell 10 percent and Limited store comps fell 7 percent.

Defying the trend towards sluggishness, Pacific Sunwear of California and Hot Topic maintained their strong sales momentum. PacSun said comps shined 4.6 percent, with PacSun stores up 3.4 percent and Demo advancing 14.1 percent.

Aided by a surge just before Halloween, Hot Topic said comps rose 11.2 percent. All units were positive, including men’s (27 percent), women’s (11 percent), music-licensed items (8 percent) and accessories (7 percent).

Among other mall mainstays, Abercrombie & Fitch, American Eagle Outfitters and Aeropostale failed to generate October excitement, as the trio reported declines of 14 percent, 18.1 percent and 6.8 percent, respectively.

AE’s 18.1 percent comp drop consisted of an 18.7 percent slump at the AE stores and a 9.2 percent drop at Bluenotes-Thriftys stores.

Results at women’s specialty apparel retailers were mixed. Ann Taylor Stores said comps increased 3.9 percent, with AT stores down 0.2 percent and Loft ahead 14.1 percent.

While AT raised third-quarter EPS guidance to between 62 and 63 cents based on strong margins, Talbots lowered its estimates to a range of 58 and 60 cents after reporting its October comps slumped 8.4 percent.

MASS MERCHANTS

Lackluster October comps extended to the mass sector as well, with strong year-ago comparisons adding to the disadvantages of warm weather, wildfires and the drift of October sales into September.

Wal-Mart Stores’ Wal-Mart division, however, shrugged all that off to comp up 4 percent while Sam’s Club gained 7 percent. Together, Wal-Mart’s total U.S. same-store sales posted a 4.5 percent improvement. Also promising was Wal-Mart’s and the larger sector’s particularly strong Halloween showing, which could be a bellwether for the holidays.

“Halloween sales improved over last year for items such as candy, costumes and decorations,” wrote Smith Barney analyst Deborah Weinswig in a research note to investors. “At Wal-Mart, Halloween sell-through exceeded last year by more than 5 percent. We believe a strong Halloween is a positive indication for solid holiday sales.”

However, Target Corp.’s consolidated comps missed the mark, advancing only 1.6 percent, although Target stores hit their mark of a healthy 4.5 percent.

“Sales at Target Corp. were below plan in October, reflecting exceptionally weak sales at both Mervyn’s and Marshall Field’s,” said ceo Robert Ulrich in a statement.

Marshall Field’s comps slumped 10.5 percent and Mervyn’s plunged 15.1 percent.

TJX Cos.’ comps regressed 1 percent, but that was going up against a 7 percent increase a year ago and within the company’s conservative plan. In a statement, TJX ceo Edmond English added that margins were strong and the company remains confident it will achieve third-quarter earnings at the upper end of its EPS estimate of 34 to 36 cents.

Ross Stores, which saw comps regress 2 percent, also went up against a 7 percent gain a year ago, but the firm hadn’t planned as conservatively as TJX.

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