NEW YORK — Consumers got back to serious shopping in July.
U.S. retailers delivered better-than-expected sales for the month, the last of the fiscal second quarter, as consumers, tempted by promotions and improved weather, cleared retailers’ shelves of summer clearance goods and got fall and back-to-school selling off to a rousing start.
Same-store sales gains were the strongest they have been in over a year, surpassing nearly all analysts’ forecasts. With inventory controls tight and momentum finally building, second-quarter guidance was boosted by a slew of retailers, including Wal-Mart Stores, Federated Department Stores, Ann Taylor, Aeropostale, Gap, Hot Topic and Pacific Sunwear of California. In addition, Kohl’s, Talbots and Abercrombie & Fitch guided investors to the high end of consensus estimates.
The higher comps were also driven by easing year-ago comparisons, pent-up demand and tax cuts.
“I am very pleased to see the trends combing back stronger than anticipated,” Janet Hoffman, a partner at Accenture’s retail practice, said. “It is the kind of momentum we have been looking for in the marketplace.”
Investors agreed, as the Standard & Poor’s Retail Index advanced 1.6 percent to 336.03, more than twice the gain of the Dow Jones Industrial Average.
Overall, the Goldman Sachs comparable-store sales index increased 4 percent in July, better than the 3.1 percent expected and far better than the 1.4 percent increase of July 2002. Discount stores posted the strongest increase, rising 5.1 percent last month, compared with the 4.5 percent GS expected. Department stores, recently the weakest of the retail segments, showed surprising strength, picking up 1.4 percent, versus the 0.3 percent decrease expected. Specialty stores, spurred on by the turnaround at Gap, posted a 3.8 percent gain, reversing a decrease of 3 percent in July 2002.
Of the 50 companies monitored by WWD, 33 finished July with increases and 17 with decreases, the strongest accumulation of gains since March 2002.
Todd Slater, an analyst with Lazard Freres, said, “July was a month characterized by strong sales and decent margins, driving positive earnings guidance from many companies as consumers spent more freely, given their increased income.”The strength of the department stores was particularly noticeable among those serving the better market. Neiman Marcus Group was up 10.2 percent, Nordstrom 6.1 percent and Saks Fifth Avenue 6.5 percent versus a slight decrease at Saks Inc.’s department store group.
The results, coupled with upcoming tax cuts, created a positive backdrop for retailers as they begin the second half of their fiscal years, but observers are still urging caution, noting that July is historically a clearance month and accounts for only a small percentage of second-quarter sales.
Elizabeth Pierce, an analyst with Sanders Morris Harris, said since July was driven by shorts and tanks promotional sales, it did not allow for the best b-t-s reads.
“We still have to be cautious,” she said. “July can be deceiving because it is transitional and clearance in nature.”
Dorothy Lakner, an analyst with CIBC World Markets, agreed, saying she does not see July’s results as a sign that consumers are picking up the pace. “B-t-s is still up in the air,” she commented.
On the other hand, now that the first six months of the fiscal year are in the books, Accenture’s Hoffman was upbeat about the second half. “The first half of 2003, while not a breakthrough, was clearly positive and it bodes well for fall,” she said.
Gap Inc. said total company comps increased 9 percent, compared with an 8 percent decrease in July 2002, marking the ninth consecutive month of improvements. Gap division (up 13 percent) paced the advance, followed by Old Navy (9 percent) and Banana Republic (5 percent). In July, merchandise margins were above prior-year levels, driven by more regular-price selling and improved markdown margins.
The company boosted its second-quarter earnings guidance to 20 to 22 cents a share, compared with reported earnings of 6 cents last year and better than current consensus estimates of 19 cents.
Limited Brands said overall comps rose 2 percent, but apparel comps were off 4 percent. By division, Victoria’s Secret comps improved 8 percent, above expectations and driven by a successful bra sale, and Bath & Body Works rose 5 percent, ahead of plan.However, Express comps were down 1 percent, below expectations, as declines in dresses, sweaters and denim offset growth in knit tops, pants and casual bottoms. In particular, LB said denim sales were disappointing, as core styles, which represent the majority of denim inventory, are good, but sales of novelty denim are below plan. Limited stores comps plummeted 14 percent, below expectations. The company expects to report slightly positive comps in August.
Leading the teen retailers with strong traffic, units per transaction and fashion trends, Aeropostale’s July comps climbed 19.3 percent and it raised its second-quarter earnings forecast to 5 to 6 cents a share, which includes a 1 cent charge relating to its recently completed secondary offering, far better than the 1 cent it reported last year and the 2 cents expected by analysts.
Pacific Sunwear of California logged a 15.1 percent comp increase, with PacSun stores up 14.4 percent and Demo up 22 percent. The firm raised second-quarter expectations to between 25 and 26 cents a share from 23 cents and declared a three-for-two stock split, its sixth in seven years, effective Sept. 5 to shareholders of record Aug. 25.
With a July comp increase of 8.7 percent, Hot Topic boosted second-quarter expectations, to 17 cents from 16 cents. HT’s highlight last month was a 17 percent increase in men’s, followed by music-licensed products, up 12 percent and accessories, up 7 percent. Women’s apparel was weaker, rising just 1 percent.
On the other hand, comps at American Eagle Outfitters continued to be disappointing as b-t-s sales were soft. AE said comps dwindled 10.5 percent at its AE stores and deteriorated 10.1 percent on a consolidated basis, including a 3.7 percent decrease at Bluenotes/Thriftys stores.
Laura Weil, chief financial officer of AE, said, “As part of our refocus on the 20-year-old customer we deemphasized activewear and logoed looks, which has pressured our early b-t-s business.”
Abercrombie & Fitch comps decreased 11 percent, but said based on its continued emphasis on margin improvement and expense control, it now expects to exceed the current consensus earnings estimate of 33 cents for the second quarter.Comps dropped 34.3 percent at Gadzooks, in the midst of its conversion to female apparel only, and were down 12.3 percent at Wet Seal, mired in a long sales slump.
Misses’ retailers showed improvement. Ann Taylor said comps rose 7.6 percent, with comps up 8.6 percent for AT stores and growing 5 percent for Ann Taylor Loft. AT boosted second-quarter earnings to 44 to 45 cents from 39 to 41 cents.
Talbots reported comps increased 0.7 percent last month, above expectations.
Arnold B. Zetcher, chairman, president and chief executive, said in a statement, “We continued to experience the strong selling of our regular-price transitional and early fall goods that we also saw last month.”
Comps rose at a lusty 15.7 percent at Chico’s FAS and also advanced at Cache (9 percent), Christopher & Banks (6 percent) and Charming Shoppes (4 percent). At Charming, 8 percent increases at Catherine and Fashion Bug stores were offset by a 5 percent decrease at Lane Bryant.
July is clearance month, and that’s just what most players did.
“Sales were better than expected, especially at department stores,” wrote Smith Barney broadlines analyst Deborah Weinswig in a research note. “We believe that heavy promotional activity drove traffic and enabled retailers to clear inventories in anticipation of back-to-school.”
That was certainly true at Kohl’s Corp., which returned to form with a 6.7 percent comp increase, its best showing since January when the company reported same-store sales growth of 5.5 percent. Kohl’s said apparel performed well on the strong sell-through of seasonal merchandise and clearance goods, especially in kid’s and young men’s. As such, Kohl’s said it is well positioned — though “cautiously optimistic” — for the b-t-s season. The retailer expects August comps to increase about 3 percent, and said second-quarter earnings per share are now forecast at the high end of Wall Street’s 30- to 32-cent outlook.Federated Department Stores beat its own expectations, comping down just 0.4 percent when it had expected to post a negative 1 to 2 percent result, and raised its second-quarter earnings guidance as a result. The corporate parent of Macy’s and Bloomingdale’s, among others, now expects EPS of 60 to 63 cents, as opposed to the previous forecast of 50 to 55 cents.
Fresh off the announcement that it will close 32 lower-volume Lord & Taylor stores plus two other doors, May Department Stores reversed course and reported a same-store sales gain of 1.8 percent. Excluding the 34 stores the company will be shuttering, comps also would have been up 1.8 percent.
J.C. Penney Co.’s department stores benefited from warm weather and a strong sell-through of clearance merchandise to post a 3.7 percent jump in comps, leaving it in good shape for b-t-s, the company said. Men’s apparel, home and family shoes were the category leaders, and all geographic regions performed well. For August, Penney’s continues to forecast comps to increase in the low-single digits.
Sears, Roebuck & Co.’s 0.8 percent decrease in same-store sales fell in line with expectations and featured strong apparel sales across women’s, children’s and men’s, led by the Lands’ End and Covington brands, the firm said. In women’s wear, sales comped up in the mid-single digits. For August, same-stores sales are expected to be flat.
At the higher end, Neiman Marcus Group saw comps shoot up 10.2 percent while Nordstrom posted a healthy 6.1 percent gain. Saks Fifth Avenue Enterprises followed suit in luxury, as same-store sales rose 6.5 percent. However, Saks Inc.’s department stores company recorded a 0.5 percent dip in comps.
Dillard’s finished the month with a 1 percent comp decline. Among the regional players, Elder-Beerman managed a 2.1 percent comp increase, while Bon-Ton, which has made a bid to buy EB, was ahead 0.1 percent.
MASS MERCHANTSWal-Mart’s discount stores registered same-store sales growth of 4.5 percent in July, easily exceeding the company’s 2 to 4 percent guidance. On a sales call, Wal-Mart attributed the increase to more “seasonally appropriate” weather, clearance and favorable year-ago comparisons. Also aiding sales was the recent tax rebate, as consumers who cashed their checks at Wal-Mart then spent 15 percent of the rebate at the store. Sam’s Club’s comps rose an even better 5.1 percent to allow overall U.S. retail same-store sales to increase 4.6 percent.
For August, Wal-Mart anticipates a comp-store gain of 3 to 5 percent. Wal-Mart is looking for second-quarter earnings per share of about 52 cents, 2 cents better than Wall Street’s guidance.
Target Corp.’s discount stores were slightly above plan for the month, topping out at 4.3 percent, but Marshall Field’s and Mervyn’s continued to struggle, dropping 2.4 percent and 5.8 percent, respectively. Still, overall, the firm managed a 3.1 percent increase, which was on plan, said ceo Bob Ulrich in a statement.
Off-pricer TJX Co.’s value-based proposition attracted shoppers in July, as seen by a 3 percent same-store sales gain, which was within the company’s plan.
“Inventories are in excellent shape,” said ceo Edmond English in a statement. “We are shipping fresh and exciting fashions at great values to our stores for the upcoming back-to-school season.”
TJX’s off-price rival, Ross Stores, saw comps rise 2 percent.
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