NEW YORK — Fashion-hungry consumers kept up their heady pace of spending in May, but worries lie ahead.
Still, same-store sales exceeded expectations last month despite eroding consumer confidence and rising gas prices this spring. Results were driven by a later-than-usual calendar shift of Mother’s Day, favorable weather and continued willingness by shoppers to spend money on fashion apparel and accessories. But higher gas prices had several companies, including Wal-Mart Stores Inc., concerned.
Standouts last month included J.C. Penney Co. Inc., Nordstrom Inc. and Federated Department Stores, with comp gains of 11.1, 7.8 and 9.2 percent, respectively. Other notable gains came from Guess Inc., Zumiez Inc. and AnnTaylor Stores Corp. with gains of 20, 18.2 and 12 percent, respectively.
Aggregate sales for chain stores jumped 4.1 percent, according to the International Council of Shopping Centers. Of the retailers tracked by the ICSC, wholesale clubs and department stores outperformed discounters and specialty stores. “Even with all the concerns over higher energy costs throughout the month, there remains an underlining breath of strength within consumer spending,” said Michael Niemira, chief economist and director of research at the ICSC.
Of the 50 retailers tracked by WWD, 34 posted positive same-store sales gains for the month, while 12 reported declines. Four companies did not release same-store sales results. The mass merchants clocked the highest average gain with 4.5 percent. They were followed by department stores, which had an aggregate same-store sales gain of 4.1 percent. The specialty sector posted a 3.6 percent average gain for May.
In April, comps performed the best in two years due to a shift of the Easter holiday. For May, analysts were expecting retailers to post much lower results. Equity firms had forecasts calling for an average comps gain of between 3 and 3.5 percent.
The May comp surprise was in sharp contrast to how consumers said they felt during the month. Earlier this week, the Conference Board’s Consumer Confidence Index, which rose in April, declined to 103.2 in May from an adjusted 109.8 in April. The two components of the index also fell; the Present Situation Index declined to 132.5 from 136.2, and the Expectations Index registered a steep drop to 83.7 from 92.3. The news sent the stock market down sharply on Tuesday, although markets have since regained most of the losses.
“Despite the gloomy consumer confidence figures, consumers still manage to go out there and shop,” said Donald Soares, principal of Capgemini’s consumer products.
The highlight of the month was Mother’s Day weekend, when gift items helped drive sales, said industry observers and analysts. Consumers continued to focus on fashion-relevant retailers as well, boosting the sales of stores in all sectors that were on target and on time with their fashion merchandise, they said. And summer-like weather for Memorial Day also helped boost sales. About 66 percent of major cities tracked by Planalytics had temperatures over 85 degrees through the holiday weekend after the month started off with unseasonably cold weather.
Warmer temperatures at the end of the month were a positive for retailers, said Janet Hoffman, a partner in Accenture Ltd.’s retail practice. Retailers who were most up to date and in season with their apparel had a good month when the summer weather finally rolled in, she said. “The retailers that are really exceeding expectations are the ones taking a lesson learned about getting in touch with the consumer,” Hoffman said.
In the department store channel, Federated’s 9.2 percent gain came on top of a 0.8 percent increase in May 2005.
“[That increase] is proof that their strategy of consolidating to the Macy’s brand and converting stores toward a single brand is paying off in terms of actual execution,” said Soares.
In the luxury department store sphere, both Nordstrom and Neiman Marcus Group Inc. turned in solid sales gains of 7.8 and 5.4 percent, respectively, while Saks Department Store Group climbed 2.2 percent and Saks Fifth Avenue eked out a 0.8 percent increase.
In the midtier department store sector, J.C. Penney’s comp gain of 11.1 percent triggered the retailer to raise its second-quarter earnings per share guidance by 2 cents to 62 cents per share. “Traffic was the key driver of comp-store sales increases for the month with good customer response to our promotional events, which were in line with plan. Our continued focus on making an emotional connection with our customer through offering stylish merchandise at smart prices should enable us to continue to attract new customers to our stores,” the company said in a call.
Ken Perkins, an analyst with Retail Metrics LLC, said Penney’s performance was a surprise. “J.C. Penney was a standout. They blew out their numbers,” he said. The company has continued to make an effort to attract young shoppers and the strategy could have helped drive May sales, he added.
In the specialty channel, Guess said stronger sales and margin performance in the quarter were cause to revise its EPS guidance to 7 cents per share from 5 cents a share. Guess’ numbers have beat analysts’ expectations for 13 months straight, said Perkins, “the longest-running string of any retailer in our universe.”
AnnTaylor said it was on target with its fashion offerings for the month, citing dresses, skirts, gauchos, city shorts, feminine blouses, knit tops and separates, and shoes as particular sales drivers. “Our sales momentum continued to be strong in all regions throughout the month of May in both brands. The AnnTaylor division delivered its 10th consecutive month of positive comparable-store sales, and we continue to see excellent results in dresses, suits, skirts, woven tops and jewelry. The Loft division had another outstanding month, with fashion and embellishment selling across all categories,” said Eileen O’Connor, vice president, investor relations.
Limited Brands Inc.’s Bath & Body Works and Victoria’s Secret banners both performed well, with 12 percent and 16 percent comp increases, respectively. The company’s core apparel retail brands did not fare so well and declined 9 percent.
Other specialty retailers that recorded double-digit increases included American Eagle Outfitters Inc. and Citi Trends Inc., with sales gains of 11 percent and 10.8 percent, respectively. Gap Inc. delivered soft sales numbers for the month. A 3 percent gain at Banana Republic couldn’t offset 8 and 5 percent declines at the Old Navy and Gap banners, respectively.
The mass merchant sector had the highest average same-store sales gains for May, despite lower than expected numbers at Wal-Mart. The strength of the sector was driven primarily by Costco and Target Corp., which reported gains of 9 percent and 5.7 percent, respectively.
Not all retailers were immune to the challenge posed by rising fuel prices over the last year. Wal-Mart again said the pressure of high gas prices on its core consumer contributed to its 2.3 percent increase, which fell at the low end of company expectations.
“Fuel prices continue to be a top concern for our customers,” said Tom Schoewe, executive vice president and chief financial officer, Wal-Mart Stores Inc., in a statement. “We believe that our customers are consolidating their store visits and focusing their spending on consumables — a trend that we’ve been seeing since Easter.”
The company gave a more conservative forecast for its June sales, in the 1 to 3 percent range.
Wal-Mart may not be the only retailer facing a tougher June, though. Comparisons for the summer months and leading into back-to-school in July are tough for retailers in all segments.
“For June, ICSC expects same-store sales to increase by 3 percent, on a year-over-year basis, as the industry faces a much tougher comparison of 5.2 percent from last year,” ICSC’s Niemira said.