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November Sales Give Hope for Holiday

As retailers posted better-than-expected same-store sales for November, the true read - total sales - on the kickoff of the holiday shopping season showed...

As retailers posted better-than-expected same-store sales for November, the true read — total sales — on the kickoff of the holiday shopping season showed robust results.

The strong sales, coupled with leaner inventories at most retailers, temporarily faded prior concerns that eroded gross margins would weaken profits in the fourth quarter. Still, November same-store sales warranted scrutiny as a calendar shift may have artificially inflated results. Some retailers urged Wall Street to look at the November-December period before making any conclusions.

Eric Beder, a teen and specialty retail equity analyst at Brean Murray Carret & Co., said in a research note that he believes “the fruits of retail management’s drive to reduce inventories will begin to bear fruit in December. We believe discounting in our universe is in-line with last year’s levels, which should allow for margin integrity.”

Total sales for the month quantified top-line strength across all three major channels. Of the retailers tracked by WWD, the specialty stores posted a total sales gain of 15.8 percent for November, while sales in department stores swelled 12 percent and mass retailers gained 8.4 percent.

MasterCard said in its SpendingPulse report that retail “sales in November improved in a number of sectors as the holiday season took off on a positive note.” But the gains were mostly outside the apparel category, although a recent cold snap has jolted apparel sales.

“Much of the boost in November’s sales was due to increases in electronics sales, which, benefiting from hot product promotions, grew at a 12 percent rate,” MasterCard said in its report. “Men’s apparel sales grew 7 percent, just slightly more than total apparel sales (6.9 percent), helped by holiday shoppers responding to the cooler seasonal weather across the Northern regions. Lagging sectors for November overall included women’s apparel (down 3.9 percent), furniture (a 3.5 percent drop) and furniture/furnishings (down 1.4 percent).”

For November same-store sales, department stores were the big winners in the month, posting an average comp-sales increase of 8 percent. The segment was buoyed by double-digit results at Saks Inc., Macy’s Inc. and Kohl’s Corp., which reported gains of 25.7, 13.4 and 10.2 percent, respectively.

The specialty chain stores turned in mixed results. The segment had an average comps decline of 0.2 percent for the month. Aéropostale Inc. reported a 6.6 percent increase in same-store sales, higher than its own guidance and Wall Street estimates. Gap Inc.’s Banana Republic and Gap banners both turned in better-than-expected performances, with increases of 4 and 1 percent, respectively.

The mass merchant segment clocked an average gain of 3.8 percent for November. Wal-Mart Stores Inc. increased 1 percent, within guidance. TJX Cos. Inc. reported 7 percent comps, well above analyst estimates.

Target Corp. had the highest same-store sales, with a 10.8 percent increase. But the company was toward the lower end of its guidance. Despite the better-than-expected results for several key retailers in November, analysts and industry observers remained cautious.

Industry observers argued that the calendar had an additional positive impact on same-store sales numbers this month. The shift included an extra week in November versus last year, and this could give an artificially bright picture of results at some retailers, analysts said. Among the retailers who reported that way were Nordstrom Inc., Kohl’s, Macy’s, J.C. Penney Co. Inc. and Target, according to analysts’ notes. Results for those retailers should be viewed cautiously, they said.

Many retailers acknowledged the role the calendar shift played in their November figures in their sales releases. Target reported two numbers for the month — same-store sales were up 10.4 percent, but the company said on a “calendar-adjusted basis” same-store sales were up just 1.1 percent.

The company went on to warn that some key categories within the store did not meet expectations, prompting the retailer to remain cautious on December and causing some concern in the markets. Target’s stock closed down 7.58 percent to $55.57 on Thursday.

Bob Ulrich, chairman and chief executive officer of Target, said its post-Thanksgiving event helped sales meet its expectations for the month, but softness during the last week kept the number short of the company’s planned range. The key shortfalls were in seasonal categories like toys and holiday trim, but Ulrich said other home and apparel categories were off as well.

“These sales trends would need to meaningfully improve in December in order to achieve fourth-quarter EPS growth,” Ulrich said.

The International Council of Shopping Centers estimated that between 0.75 and 1 percentage points of the November year-over-year sales growth is attributable to the date shift this year which inflated numbers for some retailers, according to a statement. November appears to have the strongest monthly sales increase since March of this year when it climbed 5.9 percent, but the calendar shift must be taken into account, the ICSC said.

“Adjusting for the calendar quirk, November sales were in-line with fiscal-year trends,” said Michael P. Niemira, ICSC’s chief economist and director of research. “We continue to expect comparable-store sales to increase by 2.5 percent during the holiday season (November-December).” ICSC said it expects growth of 1.5 percent in same-store sales in December.

The calendar shift could make looking at the holiday season as one complete piece even more imperative than it has been in past years, said retailers and analysts.

“This calendar shift will result in our December sales being lower than last year. It is important that the November-December holiday selling period be viewed together rather than each month individually,” said Terry Lundgren, chairman, president and ceo of Macy’s, in a statement. Macy’s posted a 13.4 percent increase in same-store sales, well above predicted growth. Sales were driven by colder weather in November as well as the calendar shift, Lundgren said.

Kohl’s chairman and ceo Larry Montgomery said Kohl’s benefited from the calendar shift, but that was expected. The store also did well in the outerwear and cold weather accessory categories due to the shift in weather.

Calendar shifts aside, the November results were exceedingly mixed, even within segments, said Patricia Walker, partner in the consulting firm Accenture. The high-end retailers were still strong across the board, but in other segments the variation between the winners and losers was significant, she said.

Overall, sources cautiously said this holiday season could prove to be less of a downer than was initially predicted.

“Although conventional wisdom is that this holiday season is the worst in years, those of us who witnessed hundreds of people in line at 4:45 a.m. two Fridays ago in front of Best Buy, Wal-Mart and elsewhere — or stood in lines dozens deep at Kohl’s, or back-countried Woodbury Common to avoid the 12-mile backup in each direction on I-87 — think this may be a fairly decent one for most of the nation’s retailers,” said Craig Johnson, president and ceo of consulting firm Customer Growth Partners. Women’s wear and home improvement retailers could still be in a rough patch, he said, but overall retailers could survive the holidays in fine shape.

In the midst of continued macroeconomic pressure on consumers, financial experts and economists are reluctant to call the outcome of the holiday season without results from December and January.

“What we are seeing here is another slightly positive development for consumer spending that defies what has generally been a very bearish tone for the economic outlook,” said John Lonski, chief economist at Moody’s Investors Service.

That could be a sign that analysts and media are getting carried away with downbeat predictions for the economic outlook, Lonski said, but few are willing to be less cautious until the credit market stabilizes.

NOVEMBER SAME-STORE SALES
  NOVEMBER OCTOBER SEPTEMBER
  2007 2006 2007 2007
  % Change % Change % Change
DEPARTMENT STORES
Bon-Ton 8.6 -10.5 -3.2 -7.1
Dillard’s 1.0 -3.0 -7.0 -7.0
Macy’s Inc. 13.4 8.5 -1.5 -2.7
Gottschalks 0.4 -0.9 -3.0 -3.9
Kohl’s 10.2 3.7 -3.8 -3.2
Neiman Marcus 5.8 2.9 8.5 6.0
Nordstrom 8.7 5.4 -2.4 3.2
J.C. Penney 2.6 1.4 -1.8 -4.6
Saks 25.7 7.2 10.6 7.7
Stage Stores 3.6 0.2 -2.9 2.3
Average: 8.0 1.5 -0.7 -0.9
 
SPECIALTY CHAINS
Abercrombie & Fitch 2.0 -3.0 -2.0 -4.0
Aeropostale 6.6 1.0 3.0 1.3
American Eagle 0.0 10.0 -3.0 -2.0
Ann Taylor 3.9 -4.3 -4.2 0.5
Banana Republic 4.0 -1.0 -2.0 -2.0
Bath & Body Works -6.0 16.0 -6.0 -2.0
Buckle 18.2 4.2 14.9 10.9
Cache -4.0 8.0 -3.0 3.0
Cato -6.0 -2.0 -8.0 -7.0
The Children’s Place 3.0 8.0 2.0 -3.0
Chico’s FAS -13.7 -0.4 -10.6 -8.3
Christopher & Banks 1.0 -8.0 22.0 1.0
Gap (U.S. stores) 1.0 -7.0 -7.0 -10.0
Hot Topic -8.3 -4.3 -4.0 -2.9
Limited Brands -7.0 12.0 -6.0 -4.0
Mothers Work 0.0 -1.3 -3.9 -7.0
Old Navy -3.0 -10.0 -11.0 -8.0
Pacific Sunwear 2.3 -3.8 -0.8 2.7
Rite Aid 0.9 2.9 0.4 0.7
Victoria’s Secret -8.0 14.0 -7.0 -6.0
Walgreen 4.4 NA 6.9 4.7
Wet Seal -1.7 5.5 -5.4 -7.0
Wilsons 0.4 -19.1 -21.8 -13.0
Zumiez 5.6 12.1 5.1 13.9
Average: -0.2 1.3 -2.1 -2.0
 
MASS MERCHANTS
BJ’s Wholesale Club 7.7 0.6 1.4 3.9
Costco 6.0 4.0 2.0 4.0
Ross Stores 3.0 0.0 4.0 0.0
Stein Mart -8.9 3.8 -5.2 -9.1
Target 10.8 5.9 6.1 1.2
TJX Cos. 7.0 3.0 4.0 2.0
Wal-Mart (discount stores) 1.0 -0.5 2.8 0.8
Average: 3.8 2.4 2.2 0.4
 
Tally:
Up 29 23 15 18
Flat 2 1 0 1
Down 10 16 26 22
Total 41 40 41 41
 
SOURCE: COMPANY REPORTS