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Wicked winter weather couldn’t keep consumers from spending in February, propelling retailers to their best month of same-store sales results in more than two years and elevating hopes the upswing is here to stay.
This story first appeared in the March 5, 2010 issue of WWD. Subscribe Today.
Stores reporting numbers Thursday were aided by extremely weak year-ago comparisons but still managed to beat analysts’ projections despite lingering high unemployment, weak consumer confidence and continued deterioration in sales of new cars and homes. Even with these Swords of Damocles hanging over retailers’ heads, the surprisingly strong showing by stores in the first month of the first quarter of the new retail year fueled optimism the buying public is starting to get over its reluctance to shop.
Teamed with stores’ continuing restraints on inventories and expenses, analysts agreed the trend could bode well for margins and profits in the months and quarters ahead. That helped move the S&P Retail Index up 5.61 points, or 1.3 percent, to 429.99, its highest close since Dec. 10, 2007, and push up the Dow Jones Industrial Average and S&P 500 by 0.5 percent and 0.4 percent, respectively, to 10,444.14 and 1,122.97.
February results were expected to show improvement, but not to the extent they did. Nineteen of 27 retailers tracked by Thomson Reuters topped estimates, and the 4 percent overall increase was the best showing since November 2007’s 6 percent leap. Last year, same-store sales results didn’t move into positive territory until September. According to the International Council of Shopping Centers and Goldman Sachs, February results were up 3.7 percent, also viewed as the best result since November 2007.
“This chain store sales reading is good news for the economy and the retail sector,” said ICSC chief economist and director of research Michael Niemira. “This report confirms that the retail sector is mending and the release of pent-up consumer demand is helping to propel a fundamental demand improvement. To be sure, this gain also shows that better margins and better execution are contributing factors to the sales improvement.”
For March, ICSC Research anticipates sales will be up about 2.5 percent.
Many analysts said March and April would provide a clearer indication of things to come. Consumers are eagerly awaiting the arrival of spring weather, and an earlier Easter should benefit March sales.
“I think there are good things to come,” said Erin Armendinger, managing director of the Jay H. Baker Retailing Initiative at University of Pennsylvania’s Wharton School of Business. “This is the first month where I feel like this is a good harbinger.”
While Armendinger underlined that the consumer still faces tight credit, high unemployment, slumping housing prices and less available disposable income, there is a sense the worst is now behind and not ahead.
“We still are not in a good place,” she said, “but now we are in a world where we can see what the future holds.”
Last month, 25 of the 31 stores tracked by WWD reported increases, six more than in January and seven more than December.
“Things are getting better,” Kurt Salmon Associates vice chairman Peter Brown said, cautioning the “cup is only half full.” Some of the improvement, he noted, is simply a reflection of “how deep the hole is” from which stores are still digging out.
“There’s a base level of shopping that’s getting people into the stores,” he said. “People still have very limited balance sheets.”
That didn’t stop them from pumping up department store results, which had an average increase of 2.7 percent, even as off-price giants The TJX Cos. Inc. and Ross Stores Inc. maintained their double-digit momentum with gains of 10 percent and 11 percent, respectively.
Nordstrom Inc. led the way with a 10.3 percent jump, followed by luxury retailer Neiman Marcus Inc., which reported a 5.3 percent gain on Wednesday. Saks Inc. fell short of expectations with a 2 percent increase.
Kohl’s Corp and Macy’s Inc. each rose 3.7 percent, while J.C. Penney Co. Inc. returned to positive territory with a 1.2 percent pickup.
“Sales performance was strong at both Macy’s and Bloomingdale’s in February, despite a series of winter storms that affected store operations in some of our largest markets during key selling periods of the month,” said Terry Lundgren, chairman, president and chief executive officer of Macy’s Inc., who estimated the increase would have reached 5 percent without the month’s stormy weather.
Dillard’s Inc. registered a 2 percent gain, while Stage Stores Inc. floundered with a 3.9 percent slide.
Michael Balmuth, vice chairman and ceo of Ross Stores, called the February results “well above our expectations” but cautioned that “the impact of an earlier Easter is always very difficult to predict.” Still, Ross stuck by its forecast for a comp increase of 3 to 4 percent in March, and flat result to 1 percent advance in April.
While February is far from a critical sales month, Sherif Mityas, a partner in the retail practice of A.T. Kearney, said the comp results do suggest a deceleration of the “flight to value” and perhaps a return to higher-end retailers, including a more upscale discounter such as Target Corp., which posted a 2.4 percent comp gain versus a 0.5 percent increase in January.
“The U.S. consumer has a short memory,” he said, predicting the consumer will “reemerge” and begin spending more on luxury and other discretionary items at the end the of year and into the beginning of 2011.
Citigroup’s softlines retail analyst Kimberly Greenberger agreed spending would shift, but she took a more nuanced approach.
“Consumers will continue to shop value destinations, but last year, that dominated,” she said. “Consumers will continue to shop value, but their wallets are opening up more at the mall.”
Although Greenberger has not yet seen spending transfer from discounters to upper-tier, mall-based retailers, she does anticipate the transition to occur eventually. For off-pricers, retaining customers could be a challenge, especially as it becomes more difficult for these stores to snag designer goods for their merchandise mix.
But for now, the emphasis on value is still apparent, as seen in the performances of Aéropostale Inc. and Gap Inc.’s Old Navy, which reported gains of 7 percent and 5 percent, respectively.
Abercrombie & Fitch Co. also has become more aggressive on pricing, resulting in its second straight monthly increase, a 5 percent gain, and a 14.6 percent increase in its stock price Thursday, to $41.52.
“We believe February comps are evidence that Abercrombie’s more aggressive promotional stance can be effective at improving traffic and sales trends as February’s average unit retail price fell about 14 percent while overall comps increased 5 percent,” Greenberger said, adding Citi upgraded the stock to “hold” from “sell.”
Strong product execution helped Gap’s Banana Republic unit deliver a 6 percent comp jump, while solid denim sales kept Gap North America’s comp-sales flat, Greenberger said.
Limited Brands Inc. impressed analysts with a 10 percent comp, with Bath & Body Works and Victoria’s Secret posting gains of 11 percent and 10 percent, respectively. Other standouts included action sports retailer Zumiez Inc., which recorded an 11.2 percent same-store sales leap, and American Eagle Outfitters Inc., which registered a 6 percent increase.
American Eagle, however, saw its stock fall 4.2 percent, to $16.73, Thursday because of a lower-than-expected increase in merchandise margins, Greenberger said.
According to Lazard Capital Markets analyst Todd Slater, this is a “misinterpretation” of the retailer’s results. Despite several store closures in “the heart of AE’s core regions,” the teen retailer was able to deliver a strong comp, he said.
Average unit retail was also down double digits, which “reflects that fact that AE sold out of clearance in December last year, so it sold more as a percentage of the mix this year in a month bombarded with snowstorms,” he said.