A bruising battle for the tight dollars of budget-conscious shoppers is developing for holiday.
This story first appeared in the November 15, 2013 issue of WWD. Subscribe Today.
Wal-Mart Stores Inc. and Kohl’s Corp. both provided cautious forecasts for holiday sales as they reported third-quarter earnings Thursday, demonstrating the uncertainty affecting both the mass and mid-tier channels, while Nordstrom Inc. stuck with earlier forecasts as a string of retailers — also including Dillard’s Inc and American Apparel Inc. — reported quarterly results.
Nordstrom, which reported lower earnings principally due to the move of its Anniversary Sale to the second quarter this year from the second and third quarters of 2012, provided full-year guidance that was generally consistent with previous estimates, with same-store sales estimates narrowed to a 2.5 percent increase versus a prior range of between 2 and 3 percent.
David Bassuk, managing director of AlixPartners, believes the contrast in results shows the distinct dichotomy in retailing today.
“There really are two consumer camps and those who have the income and flexibility are in a much better position as far as their confidence and their willingness to spend,” he said. “Their stock portfolios are going up and so are their home values. At the other end of the spectrum, people just aren’t spending.”
He said that online shopping is playing a role for both groups of consumers, with lower-income shoppers using the Web to help them maintain budgetary discipline that might be sacrificed in a mall setting, and more affluent shoppers taking advantage of attractive push-marketing offers as well as indulging themselves with the occasional self-gift.
“The Web has made it easy for those trying to keep themselves away from the pressure to spend,” Bassuk said. “As for the haves, we still feel that they are going to overspend.”
AlixPartners is projecting a 4.1 to 4.9 percent increase in holiday spending this year, higher than many of the other forecasts being issued. Bassuk noted that last year, those with household incomes below $70,000 accounted for 67 percent of households and 45 percent of spending for the year. Meanwhile, households of $100,000 and up accounted for just 19 percent of households but 37 percent of spending, according to data from the U.S. Census Bureau.
“The spending is going to be weighted to the haves, and it’s not just going to be in the high-end stores. Higher-end consumers flush out across all channels, including off-price and discount,” he said.
That’s part of the reason why Sam’s Club enjoyed stronger comps than Wal-Mart stores in the third quarter, and helps explain why sales at Nordstrom’s Rack stores and online helped to mitigate what Seattle-based Nordstrom described as “softer sales trends in full-line stores.”
Wal-Mart expects comparable-store sales at its U.S. Wal-Mart stores to be flat for the quarter and flat to up 2 percent at Sam’s Club. Kohl’s pulled down fourth-quarter earnings estimates based on expectations of comps that will be flat to down 2 percent, with overall sales off between 2 and 4 percent.
Mike Duke, president and chief executive officer of Wal-Mart, left no doubt about his company’s goals as the holidays approach.
“Our most important priority is growing top-line sales, including comps, by providing quality merchandise at great prices to customers around the world,” he said on a conference call Thursday morning. “The retail environment, both in stores and online, remains competitive.”
The competition in the U.S. is being fueled in part by uncertainty among consumers “about the economy, government, job stability and their need to take care of their families through the holidays,” Duke said. He added Wal-Mart “has aggressive plans to help our customers enjoy the holiday season and find fantastic gifts for their loved ones while maximizing their budgets at the same time.”
In the quarter ended Oct. 31, Wal-Mart’s net income rose 2.8 percent to $3.74 billion, or $1.14 a diluted share, from $3.64 billion, or $1.07, in the year-ago quarter. Revenues grew 1.7 percent overall, to $115.69 billion from $113.8 billion, with sales up 1.6 percent to $114.88 billion.
Comps slid 0.3 percent at Wal-Mart’s U.S. stores, partially offset by a 1.1 percent increase at Sam’s, Wal-Mart’s representative in the warehouse channel.
The 0.3 percent comp decline at Wal-Mart U.S. was virtually identical to the 0.4 percent drop in traffic. Still, apparel managed a low-single-digit comp increase as “we remained focused on basics and the addition of national brands, both of which continue to deliver results,” said Bill Simon, president and ceo of Wal-Mart U.S. Duke had pointed out that traffic has improved since the end of the first half and that the mass merchant “gained market share again in some of our most important categories.”
Kohl’s indicated that it was pursuing a more brand-oriented mix as it looks to regain its luster with midtier shoppers just as J.C. Penney Co. Inc. begins to stitch together a comeback. Kohl’s said Thursday that it would add both Juicy Couture and Izod to its fall 2014 assortment. The intellectual property of Juicy was sold to Authentic Brands Group by Fifth & Pacific Cos. Inc. last month.
“We’re very pleased by the early results of our renewed emphasis on national brands,” said Kevin Mansell, chairman, president and ceo of Kohl’s, on the company’s call Thursday. “For the first time in recent memory, our portfolio of national brands reported higher comps than our private and exclusive brand portfolio.”
National brand penetration was up “slightly” to 47 percent of sales, he said, with strong contributions from Nike, Adidas, Van Heusen, Gloria Vanderbilt and others.
At Kohl’s, both net income and sales declined during the quarter ended Nov. 2 and, unlike its larger competitor, it fell short of analysts’ expectations for earnings. Net income dropped 17.7 percent to $177 million, or 71 cents a diluted share, from $215 million, or 91 cents, a year ago. The earnings per share figure fell 5 cents short of what analysts, on average, were expecting.
Kohl’s revenues receded 1 percent, to $4.44 billion from $4.49 billion a year ago, and comps declined 1.6 percent.
Charles Grom, analyst at Sterne Agee, felt Kohl’s is making progress to “drive better sales per square feet in 2014 (and beyond),” but noted that its biggest hurdle — weak traffic — “remains an obstacle not only today, but tomorrow as well.”
Wells Fargo analyst Paul Lejuez noted that the strong third-quarter showing by Macy’s, which reported a 22 percent hike in profits and a 3.5 percent increase in comps on Wednesday, dramatizes the challenge to Kohl’s. The Menomonee Falls, Wis.-based retailer “is losing share in the midtier space,” he wrote in a research note. He and his associates “remain concerned that [fourth-quarter] comps could be worse than expected…driven by less inventory and weak traffic trends, and gross margin could fall short of expectations” because of heavy promotional pressures.
Nordstrom, reporting after the markets closed, saw net income fall 6.2 percent to $137 million, or 69 cents a diluted share, from $146 million, or 71 cents. The company said that the rescheduling of its annual sale added 6 cents to second-quarter EPS and subtracted the same amount from the third quarter. Revenues were up 2.8 percent, to $2.88 billion from $2.81 billion, with net sales ahead 2.9 percent to $2.79 billion from $2.71 billion. Nordstrom comps rose 0.1 percent, with full-line stores and the direct businesses down 0.7 percent and Rack’s comps ahead 3.7 percent.
Blake Nordstrom, president, noted that the softness at the full-line store sales was “consistent with recent trends but lower than what we anticipated as we started the year.
“Our online business continues to deliver considerable growth consistent with our expectations and reflective of the investments we’re making to elevate the online shopping experience,” he said, adding that the women’s business has benefited from the retailer’s addition of Topshop shops as well as from a focus on key brands. More accessible price points have helped attract new customers.
At the other retailers reporting Thursday:
Dillard’s Inc. said it squeezed out a 4.9 percent increase in profits on a 1 percent rise in comps.
The Little Rock, Ark.-based department store chain beat analysts’ estimates with net income for the quarter ended Nov. 2 of $50.9 million, or $1.13 a share, 8 cent above analysts’ expectations, versus profits of $48.5 million, or $1.01, in the year-ago period.
Revenues were up 1.4 percent, to $1.51 billion from $1.49 billion, with retail sales ahead 1.3 percent to $1.47 billion.
“Another positive comparable-store sales increase and expense control highlighted our third quarter at Dillard’s, as did our aggressive execution of $187 million of share buyback,” ceo William Dillard 2nd said. “In spite of a somewhat disappointing 30 basis point decline in merchandise gross margin, we were pleased to deliver increased net income.”
Dillard’s also said that it would continue its “long-standing tradition” of staying closed on Thanksgiving Day. Stores will open at 8 a.m. on Black Friday.
Meanwhile, American Apparel Inc. chairman and ceo Dov Charney said the company was ready to move back into growth mode after the distribution center difficulties of the third quarter.
The net loss in the period narrowed to $1.5 million, or 1 cent a share, from a loss of $19 million, or 18 cents, a year earlier. However, adjusted earnings before interest, taxes, depreciation and amortization fell 71.4 percent to $3.8 million.
Sales for the quarter ended Sept. 30 inched up 1.5 percent to $164.5 million from $162.2 million.
“No question we had a rough third quarter, although I think it is important to emphasize that most of the challenges we have faced were primarily technically oriented and we believe these challenges are substantially behind us,” Charney noted.
He said the firm had opportunities for online and private label growth and could also tap into growing interest in apparel made in the U.S.
“An example of the made in USA demand includes an order we recently received for over 500,000 units that will be sold as printed items at a major retailer,” he said. “We are currently hiring over 300 sewing employees to meet demand I anticipate in 2014. It is also noteworthy that our unit inventories are at their lowest levels in three years.”