Strong post-Thanksgiving results, fueled by frantic promotions, weren’t sufficient to overcome November’s slow start and poorly timed finish.
Despite a healthy pickup in traffic and transactions at month’s end, the result was a disappointing November for comparable-store sales, which finished below weak year-ago levels.
Goldman Sachs’ retail composite index for the month had overall comps down 1.1 percent as department stores comped down 6.8 percent, discounters managed a 1 percent increase and specialty apparel and off-price stores were up 0.7 percent. The overall measure came in below the GS estimate of a 0.3 percent drop for the month, and all three subcategories finished below expectations.
With Federated Department Stores and May Department Stores reporting comp decreases of 7.4 and 7.9 percent earlier in the week, as reported, the sector was under pressure anyway, but that grew exponentially after Kohl’s Corp., a perennial comp advancer, registered a 3.4 percent comp decline for the month.
Among 50 retailers monitored by WWD, only 14 managed advances — most notably Gap Inc., with its second consecutive positive showing — while 35 finished lower. J.C. Penney’s department stores were flat for the month.
Now the focus shifts to December, rendered even more significant this year because of the late Thanksgiving, which fell six days later this year than last. This gave stores only two post-holiday shopping days last month as compared to nine last year, leaving retailers with virtually the entire selling season ahead of them.
While the Thanksgiving weekend proved in many cases to be better than expected, allaying fears of a Christmas bust, retail executives and analysts continue to be unclear on how to interpret the weeks ahead.
Dana Telsey, a retail analyst with Bear, Stearns, said, "The end of the month was key to helping retailers achieve the comps they did achieve. November certainly left a question mark about December."
The questions include whether this December will be as promotional in tone as the highly frenetic December 2001 and whether the gains this month will be sufficient to compensate for last month’s declines.Dan Barry, an analyst with Merrill Lynch, thinks the answer to the latter question is probably yes. He said December sales should be very strong because the season is compressed nearly entirely into this month.
"Most retailers should have above normal sales in December," he said, adding he is expecting to see a small gain for the two months combined.
He noted that, historically, a late Thanksgiving has translated into a 1.6 percent reduction in combined results for November and December.
Wal-Mart managed a 2.8 percent comp increase at its discount stores only after a record-setting Black Friday. Target wasn’t as fortunate, with discount store comps off 5.7 percent. Other retailer laggards included: Abercrombie & Fitch (down 13 percent), American Eagle Outfitters (6.5 percent overall), Ann Taylor (10.3 percent), Talbots (3 percent), Eddie Bauer (18 percent), Target’s Marshall Field’s unit (10.5 percent), Dillard Department Stores (7 percent), Saks (7 percent); Sears (10.9 percent) and ShopKo (10.9 percent).
In addition to Gap, the narrow field of advancers included Neiman Marcus (5.8 percent), Chico’s FAS (11.3 percent), Pacific Sunwear (11.7 percent) and Hot Topic (4.7 percent).
Saying November’s results were disappointing relative to expectations, Shari Schwartzman Eberts, a retail analyst at J.P. Morgan, said, "I think November is more noise than data. The sales results are interesting, but I am not sure they provide a lot of useful information this year because of the late holiday."
Like Telsey, Eberts said she fears this year’s promotional cadence will be similar to last year’s when retailers were left overdosing on inventory after the Sept. 11 attacks.
Regarding Kohl’s weak results, Eberts explained the retailer overplanned for the month because "they were hoping that given the shorter season, consumers would come shopping earlier and that just did not happen." She said its sales trended similarly to those of the rest of the group, which experienced strong momentum only at the end of the month, incapable of erasing the softness registered at the beginning.
"This is a nail-biting season," Dana Cohen, a retail analyst at Banc of America Securities, said. "There is a lot of noise in these [November] numbers with the Thanksgiving shift and consumers waiting until the last minute when they could see even greater discounts."Sounding a lot like the Grinch, Steve Skinner, a partner at Accenture’s retail industry group, warned he is expecting retailers to post "horrible profits" for the current quarter: "I think retailers’ profit margins are going to be significantly depressed for the Christmas selling season and I do not see a significant upturn in consumer activity at the stores."
He said that, even when enticed by promotions, consumers aren’t spending more this year than last, suggesting comps could finish the season flat: "I had on my retail wish list less promotional activity and higher comps, but all I got was a lump of coal instead."
Gap Inc.’s 9 percent comp gain, compared with a 25 percent decrease last November, was driven by higher units per transaction, as well as strong customer response to holiday products and marketing at Gap stores and Old Navy. By division, all units comped positively: Old Navy; 15 percent; Gap, 6 percent, and Banana Republic, 3 percent.
"Overall, November sales slightly exceeded our beginning-of-month projections," Heidi Kunz, chief financial officer, said. "Total company margins improved year over year across all divisions despite continued promotional activity. Customers are responding well to key items in our marketing campaigns, including the crazy-stripe sweater, scarf and hat at Gap, and Performance Fleece at Old Navy."
On the other hand, Limited Brands’ comps declined 2 percent, worse than expected and driven primarily by disappointing results at Bath & Body Works and Express women’s. Total comps include a 14 percent comp decline at Lerner New York, due to that unit’s sale just prior to Thanksgiving. Excluding Lerner, comps were down 1 percent.
By brand, Victoria’s Secret reported flat comps, driven by a good response to holiday merchandise and a boost from customer-relationship marketing, including the Body by Victoria panty sampling offering.
Express comps fell 2 percent, below plan, as strength in knit tops, bottoms and dresses was offset by weakness in woven and casual bottoms and sweaters. In men’s, results were in line with expectations, helped by sales in woven shirts, denim and accessories but hindered by casual bottoms and knit tops. At Limited stores, comps gained 2 percent, in line with expectations, as woven and cut-and-sew tops and accessories continued to perform, but skirts and sweaters were disappointments.Pacific Sunwear of California said its comps increased 11.7 percent, with PacSun comps up 10.3 percent and Demo up 25.5 percent. By category, guys were down 4.5 percent but young women, footwear and accessories were ahead 16, 30 and 29 percent, respectively. Top sellers for young women were T-shirts, short-sleeve knits, fleece and outerwear.
The company said that, based on November’s results, it is now forecasting fourth-quarter comps to be up 7 percent, assuming December and January comp increases of 5 to 6 percent. It also said it expects fourth-quarter earnings per share will likely exceed its recent guidance of 50 cents by 5 cents.
Other teen retailers didn’t share in the good fortune. American Eagle Outfitters said comps declined 4.9 percent for the November period due to a mid-single-digit decline in the average unit retail price due to the more promotional activity. In addition, units sold per store were flat, while the number of transactions per store declined in the mid-single-digit range. Including a 30.1 percent comp slide at the Bluenotes/Thriftys stores, comps were off 6.5 percent.
Laura Weil, chief financial officer, said on a prerecorded call that while the retail environment is highly promotional and its men’s business remains difficult, there is positive momentum in its women’s division, which recorded its fifth straight month of improvements.
AE expects December comps in the negative low-single-digit range and reiterated the current fourth-quarter earnings estimate of 56 cents a share.
Abercrombie & Fitch reported a 13 percent decrease, also adversely affected by the shift in the Thanksgiving calendar. The company said it took a much less aggressive approach to store-front marketing and in-store promotions versus last year. For example, it said it did not repeat a 25 percent discount on all denim it ran over the Thanksgiving holiday. "Although we expect this less promotional stance to impact comps, we are currently selling at much higher margin rates than last year," the company said. Transactions per average store were down 17 percent, but the average transaction value was up 3 percent. Comps were negative in both men’s and women’s, but women’s was stronger. The company also noted Hollister had a very strong November.Aeropostale said it experienced a comp decrease of 1.3 percent, in line with plans. Julian R. Geiger, chairman and chief executive, said its comps rose in the mid-single digits for the Thanksgiving weekend, compared to a 25 percent increase for the same period in the prior year. He also said promotional activity has moderated and merchandise margin trends continue to improve versus plan.
Other teen specialty store reporting comp declines were Bebe Stores (15.1 percent), Gadzooks (1.2 percent) and Wet Seal (9.7 percent).
On the misses’ side, Talbots and Ann Taylor failed to ignite sales, as comps fell 3 percent and 10.3 percent, respectively. AT stores comped down 11.7 percent and AT Loft stores decreased 7.6 percent.
While Talbots’ results were in line with estimates, allowing it to reaffirm its outlook for the fourth quarter of EPS in the range of 48 to 53 cents, Ann Taylor said weak consumer spending trends were responsible for the movements of its "Friends and Family" event into the last week of fiscal November from December.
Retail dynamo Kohl’s Corp. saw unusual weakness in November with a 3.4 percent dip in comparable-store sales. "With the later Thanksgiving, sales of holiday gifts got off to a slower start than we had planned," admitted ceo Larry Montgomery in a statement. "Post-Thanksgiving sales were up on a comparable-store basis on top of a strong performance last year, giving us confidence that we will have a good holiday season."
The retailer continues to target a mid-single-digit uptick in comps the combined November-December period.
Monthly comp-store sales at J.C. Penney Co. Inc.’s department stores were even with a year ago. Stronger results were masked at Penney’s by a fiscal calendar that closed November’s books the Saturday before Thanksgiving, while in 2001, the holiday fell into the month. "Sales were supported by aggressive, planned marketing events," said a spokesman on a recorded call.
For December, the firm projected a low-single-digit same-store sales increase.
The larger traditional department store players each reported tough comp declines earlier this week. May Department Stores Co.’s same-store sales dropped 7.9 percent in November, while Federated Department Stores Inc. was down 7.4 percent.Still working through a major restructuring, Sears, Roebuck & Co. posted a 10.9 percent comp drop for the month. Same-store sales at the firm’s full-line stores slid in the low-double digits. Softlines comped down by a high-teen percentage, with low-teen retreats in both women’s and men’s apparel.
Dillard’s Inc. posted a 7 percent same-store sales drop for the month. Overall sales fell 7.9 percent to $613.6 million. Total sales of women and junior’s apparel slid 11 percent while men’s sank 13 percent.
Saks Inc.’s November comps waned 7 percent on an 8.1 percent drop in its department store group and a 5.1 percent regression at the Saks Fifth Avenue luxury unit. Sales for the first three weeks of the month were below plan, while momentum built in the fourth week with a mid-single-digit comp uptick.
Elsewhere in the world of luxury retailing, Neiman Marcus Group’s comps rose 5.8 percent while Nordstrom Inc. posted a 1 percent same-store sales drop for the month. On a calendar basis, Nordstrom said its comps inched up 2.8 percent.
It was also a tough month for the regional department stores with declines at Bon-Ton Stores Inc. (down 10.4 percent), Stage Stores Inc. (9.4 percent), Elder-Beerman Stores Corp. (6.7 percent) and Gottschalks Inc. (4 percent).
Wal-Mart Stores Inc. pushed ahead in November with a 2.6 percent comparable-store sales rise. This was made up of a 2.8 percent advance at its namesake division and a milder 1.3 percent climb at Sam’s Club. Overall results hit near the middle of Wal-Mart’s projected 2 to 4 percent uptick.
"Sales were below plan for most of the period but were helped by a strong above-plan performance on the Friday following Thanksgiving," said a spokesman on a recorded call.
At the Wal-Mart division, apparel was one of the merchandise categories with an above-average sales performance during the month. Both average ticket and traffic growth were positive for the month, with traffic accounting for about 60 percent more of the comp rise.
In December, the world’s largest firm is looking for a 3 to 5 percent same-store sales upswing.The other major discounter, Target Corp., didn’t fare as well during the month and posted a 6.7 percent comp decrease. This was made up of a 5.7 percent backtrack at Target stores, and decreases of 12.5 percent and 10.5 percent at Mervyn’s and Marshall Field’s, respectively.
For December, the Target division and the overall firm are looking for a comp increase of 3 to 5 percent. Accordingly, the combined November-December period is slated to produce a flat to up 2 percent comp result.
Other value-orientated retailers endured same-store sales declines in November as well. Among them were ShopKo Stores Inc. (down 10.9 percent), Factory 2-U Stores Inc. (9.6 percent), Value City Department Stores Inc. (7.8 percent), Stein Mart Inc. (2.2 percent) and TJX Cos. Inc. (1 percent).
Bucking the trend with a rise was Ross Stores Inc., which saw comps inch up 1 percent.
Also on Thursday, according to published reports, Wal-Mart withdrew a court order seeking to identify the party that leaked information about its holiday shopping discounts to FatWallet.com. Last month, the discounter delivered a subpoena from an Illinois federal court to FatWallet after the Web site gave early notice of the firm's post-Thanksgiving sales. Wal-Mart, along with other retailers, successfully had its post-Thanksgiving prices removed from the FatWallet by citing digital copyright protections.
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