NEW YORK – The holiday winners: Nordstrom, Neiman Marcus, Federated, Abercrombie & Fitch, Guess, Zumiez, Chico’s and Urban Outfitters.
The losers: Wal-Mart, Gap, Banana Republic and Anthropologie.
That was how the holiday shopping season sorted out at retail in terms of comp-store sales released Thursday. The key now will be how profitable the season was for stores, many of which began marking down merchandise earlier than ever.
The International Council of Shopping Centers said Thursday that the average December same-store sales increase was 3.2 percent – within the range of ICSC’s 3 to 3.5 percent expectation – and was driven by shoppers who waited until the last minute to buy gifts. Comps in the two-month holiday season were up 3.5 percent, versus a 2.3 percent increase during the same period in 2004.
For all of 2005, the monthly comp average was 3.7 percent versus an average monthly 3.8 percent comp increase last year, ICSC said.
“It seems as though the consumer is resilient and continues to spend,” observed Kim Picciola, equity analyst at Morningstar, in an interview. “We got a glimpse as to how they did for the quarter. We won’t know the full story until we see the profits.”
Another analyst had a more negative view on the month’s results. “It was a mixed and average ho-hum holiday,” said John Morris of Harris Nesbitt. “This just wasn’t the apparel season. If you looked at what worked, there were a few pockets of strength – companies that had the right product that was on trend, such as Hollister, or [comps] had to be price-driven, markdown-driven – [and] customers reacted to that.”
Still, some retailers, including J.C. Penney Co., Ross Stores Inc., Aéropostale Inc. and Gap Inc. – whose Gap division in the U.S. posted its worst December same-store sales result in at least five years, down 10 percent – said they are expecting to see earnings toward the high end of guidance (see box).
In December, retailers “didn’t do great, [but] they didn’t do terrible. It could have been a lot worse because they were so promotional and because they didn’t have high expectations going into [the holiday],” said Morningstar’s Picciola.
January, typically a promotional month that retailers use to clear out winter merchandise and test spring apparel, also could benefit from gift card redemptions. Roughly two-thirds of holiday gift cards are redeemed in January, analysts estimate.
Deborah Weinswig, equity analyst with Citigroup Research, noted in a Thursday research report that, “as consumers have demonstrated a tendency to purchase full-priced merchandise when redeeming gift cards, the cards’ sales can benefit retailers’ sales and margins.”
And, given that more retailers haven’t reduced fourth-quarter earnings guidance, profits in the quarter could be strong. “Few retailers reported profit warnings resulting from promotional selling, contrary to common belief. Those that had problems, especially Wal-Mart, typically had merchandising issues, or, in the case of Kohl’s, were unable to leverage sales to reduce expansion costs,” Richard Hastings, senior retail analyst at Bernard Sands LLC, wrote in a Thursday research report.
Robert Buchanan of A.G. Edwards & Sons is estimating an above-average 13 percent fourth-quarter earnings increase for retailers, versus an estimated 9 percent earnings gain from companies listed on the S&P 500. Buchanan cited in part retailers’ investments in merchandising and inventory control technology for his fourth-quarter earnings projection.
Among the 50 retailers tracked by WWD, December comps were overwhelmingly positive, with 40 companies posting same-store sales gains and nine that posted negative results. ShopKo Stores, newly private, was not available.
The specialty retail group once again outpaced both department stores and mass merchants with a 6.3 percent aggregate same-store sales increase in December. Department stores came in with a 4 percent increase, while mass merchants posted a 2.6 percent average gain.
Winners among the specialty chains during holiday include: Zumiez Inc., which posted a big 20.9 percent comp increase; Abercrombie & Fitch Inc., a 29 percent surge; Guess Inc., a 17.5 percent rise in comps; Chico’s FAS, a 16.4 percent gain, and United Retail Group Inc., a 16 percent December comp advance.
Hastings noted that companies such as Abercrombie & Fitch and Guess posted solid sales gains by luring shoppers into stores with “their total store experience: service, great displays, quality and right-on fashions to reflect their shoppers’ lifestyles.” And they had solid comp results despite not having big promotions, Hastings said.
Elsewhere in the specialty apparel sector, Urban Outfitters Inc., which does not report monthly comps during the year other than at holiday, said December same-store sales were up a combined 6 percent for its three brands – Anthropologie, Urban Outfitters and Free People. In the combined November-December period, the company saw consolidated comps increase 8 percent. By nameplate, Anthropologie comps rose just 2 percent, while Urban Outfitters comps were up 14 percent. Free People comps jumped 21 percent. Urban also saw online and catalogue sales climb 24 percent and sales of gift cards jump 50 percent.
The weakness at Anthropologie could impact fourth-quarter earnings for Urban. Along with a spate of other recent analyst earnings estimate decreases on the company, Neely Tamminga, senior research analyst at Piper Jaffray, lowered her earnings per share estimate on Urban to 23 cents from 25 cents Thursday, which compares with Wall Street’s consensus estimate of 24 cents. Tamminga added, however, that she is “encouraged” by Anthropologie’s recently released spring catalogue because “it reveals a more neutral color palette and a wider appeal in key silhouettes.”
Limited Brands Inc. saw a positive 3 percent consolidated comp, including a better-than-expected 7 percent rise in its Express apparel division and a 4 percent increase at Victoria’s Secret. The company said on a recorded call that Victoria’s Secret benefited from being a gift destination with sales of Pink sleepwear and beauty products among the top sellers. At Express, sales were driven by “substantially increased transactions with a lower average unit retail,” the company said, noting that merchandise margins were up from last year.
Department stores also saw strong results with Federated’s Macy’s and Bloomingdale’s chains posting a better-than-expected consolidated December same-store sales rise of 3.4 percent; the company said customers responded to its “affordable luxury” goods within apparel and accessories.
Moderate chain Kohl’s Corp. came in with a 4.6 percent comps gain, which was slightly off consensus estimates, while J.C. Penney saw comps in its department stores rise by only 2.2 percent, also slightly below expectations.
“The mall seems to be alive. A lot of the retailers that are on the mall seemed to fare OK [in December],” said Morningstar’s Picciola. “There had been so much talk about this shift in spending to off-mall, to big-box discounters … [but] it seems as though the mall was still attractive enough that the retailers were able to capitalize.”
Analyst Adrianne Shapira of Goldman Sachs & Co. noted that the “competitive holiday season highlighted those retailers with strongest merchandising,” citing in a Thursday research report strong December results from Federated, Target, J.C. Penney and Nordstrom.
Indeed, luxury remained relatively hot, with newly private Neiman Marcus registering an 8.6 percent rise, Nordstrom posting a better-than-expected 7.7 percent December comp-sales increase and Saks Fifth Avenue having a 3.1 percent increase, which was above Wall Street’s consensus estimate. Saks said its best-performing categories were women’s designer labels, bridal and women’s and men’s contemporary sportswear, while Nordstrom saw strength in women’s shoes, accessories and cosmetics.
Looking to the mass sector, Wal-Mart Stores Inc. reiterated its lower-than-expected 2.2 percent rise in December comps at U.S. stores, which included a 1.9 percent comp rise at Wal-Mart stores and a 3.6 percent comp increase at Sam’s Club.
Shares of Wal-Mart dropped 1.2 percent on Tuesday, the first day of trading after the company preannounced on Saturday the 2.2 comp-store sales increase, a modest gain in Wall Street’s eyes. The company’s shares also fell in Thursday trading, losing nearly 1.4 percent, or 63 cents, to close at $45.69, among an overall mixed day for retail stock trading (see sidebar for more on stocks).
Shapira called Wal-Mart’s 1.9 percent comp in its discount stores “light” considering the “aggressive pricing and increased marketing this holiday season.” She said prices of key holiday items were 800 basis points below Target’s pricing.
Wal-Mart also said Thursday that total sales in December were up 6.7 percent at Wal-Mart stores to $27.92 billion from $26.18 billion last year. Total sales including Sam’s Club, Wal-Mart and international operations were up 6.3 percent at $40.83 billion.
Meanwhile, Target said December comps in its discount stores rose 4.7 percent, while its total December sales volume rose by 11.6 percent to $8.42 billion, outpacing Wal-Mart’s total sales gain percentage of 6.7 percent.
Looking to January, both Wal-Mart and Target are expecting comps to increase 3 to 5 percent.