Sluggish February same-store sales turned investors’ fears into a reality.
This story first appeared in the March 7, 2008 issue of WWD. Subscribe Today.
Across the board, retailers reported lackluster comps Thursday, sending stocks in the sector spiraling.
The department store channel was hardest hit, with retailers such as J.C. Penney Co., The Bon-Ton Stores Inc. and Nordstrom Inc. delivering weak results.
The WWD Composite Index lost 2.3 percent to 848.72, while the S&P Retail Index nosedived 4 percent to close at 373.34. The Dow Jones Industrial Average fell more than 200 points to close down 1.8 percent at 12,040.39 and the broader S&P 500 dipped 2.2 percent to 1,304.34. While some February results exceeded estimates, consumers were still reluctant to shop and were eager to snag a bargain, making discounters the biggest winners.
“With an increase in gas prices, food inflation and turmoil in the housing market, retailers with a value-oriented message continue to benefit,” said Chris Donnelly, partner at Accenture’s Retail Practice.
Of the retailers tracked by WWD, the mass merchant sector had an average gain of 1.8 percent. Department stores had an average decline of 4.6 percent, while the specialty sector fell 0.9 percent. Looking at total net sales for the month, department stores lost 1.8 percent, the mass merchants grew 6.8 percent and the specialty sector soared 16.5 percent.
While February remains a relatively unimportant month in the retail calendar, analysts expect continued volatility and aggressive clearances heading into the summer.
“Although the March-April time period will be the first key test for 2008, it is already obvious that spring season will be one of tempered guidance and results,” said Eric Beder, retail analyst at Brean Murray Carret & Co. “The key for many players will be their ability to minimize inventory exposure to allow them to capitalize on some key fashion trends and surprise investors. Discipline remains the watchword for 2008.”
With Easter coming earlier this year, retailers will lose one sales day in March, which could translate into a decrease of 250 to 400 basis points for same-store sales, according to Richard Jaffe, analyst at Stifel Nicolaus. He expects retailers to make up this loss in April.
But experts agree comps will not turn positive until at least the second half of the year. “Last year was a great year, so even if things start to shape up, it won’t be evident until companies start to anniversary easier comps,” said Donnelly.
The only silver lining has been retailers’ attempts to cut expenses, manage inventory levels and slow store growth, said Thomas Filandro, retail analyst at Susquehanna Financial Group.
Department stores continue to struggle with Kohl’s slipping 3.8 percent and Penney’s plummeting 6.7 percent. Penney’s said women’s and children’s apparel and family footwear were the best-performing categories. The company expects a low-single-digit decrease in March comps.
Macy’s Inc. announced last week that it would discontinue reporting same-store sales figures. The midtier department store joins New York & Company Inc., Bebe Stores Inc. and Guess Inc., among retailers, who have moved away from reporting monthly numbers.
Even high-end retailers were not immune to consumers tightening their purses. Neiman Marcus Group Inc. sank 7.3 percent and Nordstrom dropped 5.8 percent, its third straight month of comps decline.
Saks Inc. was the only department store that remained positive, gaining 3.4 percent. The company said its strongest categories were men’s shoes, accessories, contemporary apparel, fine jewelry and fragrances. Women’s classic bridge apparel, petites, large sizes and designer eveningwear continue to struggle.
In the discount channel, retail giant Wal-Mart Stores Inc. posted a 2.5 percent jump for the month, topping the consensus forecast of 1 percent. The company said it saw strength in the grocery, health and wellness and entertainment segments, and sales trends in apparel improved compared with the last several months.
Rival Target Corp. grew 0.5 percent, in line with company guidance and beating expectations of a 0.5 percent decline.
Shoppers trading down also boosted warehouse clubs Costco Wholesale Corp. and BJ’s Wholesale Club Inc., which reported 7 percent and 5.9 percent gains, respectively.
Off-pricers TJX Cos. and Ross Stores Inc. saw a 3 percent and 4 percent growth, respectively, capitalizing on opportunities to acquire better brands as department stores and specialty retailers pushed back and canceled orders.
“Some retailers, including Wal-Mart, were helped by comparisons to weak sales a year ago,” said Frank Badillo, senior economist for TNS Retail Forward. “But these month-to-month blips don’t change the trend. Shoppers are intent on slowing their spending and that will continue in the months ahead.”
The teen shopper also seems to be somewhat insulated from macroeconomic difficulties and will shop if there is something new and interesting to buy, said Howard Tubin, retail analyst at RBC Capital Markets.
Aéropostale Inc. reported a 7 percent increase, while Pacific Sunwear of California Inc. shot up 6 percent, beating consensus estimates of a decline of 0.6 percent.
According to store checks conducted by WWD at the Third Street Promenade in Santa Monica, Calif., and at the Media City Center mall in Burbank, Calif., Pacific Sunwear has been able to improve its junior business, adding some fashion items while remaining true to its skate and surf customer.
Urban Outfitters Inc., a top pick among analysts, reported a quarterly comp jump of 11 percent. By division, Anthropologie grew 18 percent, Free People soared 19 percent and the Urban Outfitters division saw a 6 percent boost.
Another notable standout included Buckle Inc., which soared 24.3 percent on top of a 7.8 percent increase last year. Filandro said the company has been able to drive growth with the right branded goods that provide a new twist.
But both American Eagle Outfitters Inc. and Abercrombie & Fitch Co. missed expectations. The retailers reported a 4 percent and 2 percent decrease, respectively, hurt by lagging sales in their women’s divisions.
Despite the decrease, American Eagle upped fourth-quarter guidance to 66 cents a diluted share from the range of 64 cents to 65 cents. The company expects negative comps to continue in the first quarter and anticipates higher markdowns compared with last year. American Eagle was downgraded by Wachovia Capital Markets and Needham & Co.
An Abercrombie & Fitch store visit at the Third Street Promenade revealed that the teen retailer had stocked many of the same iconic classics it is known for, but without innovation. “It’s pretty obvious you can buck the trend with newness and differentiation,” Filandro said. “Some of the teen and women’s retailers have been stuck too long on the same trends like baby-doll tops and denim styles because they can’t find the next hot item.”
Action sports retailer Zumiez Inc. also missed expectations, declining 2.6 percent, it’s first negative comp report in more than two years.
Baby Boomer retailers remained a challenge, with AnnTaylor Stores Corp. down 1.7 percent, and Chico’s FAS Inc. plunging 14.9 percent.
“Women’s overall has lacked newness and the missy customer has been most impacted by the economic downturn. Overall, men’s has been performing better over the last few months,” Tubin said.
“What is wrong with the women’s business?” Jaffe said. “And I am not talking about the above-35 business….We are also seeing women’s weakness at the teen level at American Eagle and Abercrombie & Fitch.”
Gap stores posted a 3 percent drop, as the company remains focused on driving margins over top-line growth. Limited Brands Inc. slipped 9 percent, while both the Bath & Body Works and Victoria’s Secret chains plummeted 10 percent.
|FEBRUARY SAME-STORE SALES|
|% Change||% Change||% Change|
|Abercrombie & Fitch||-2.0||-6.0||0.0||-2.0|
|American Eagle Outfitters||-4.0||17||-2||0|
|Bath & Body Works||-10.0||2.0||-10.0||-8.0|
|The Children’s Place||5.0||5.0||6.0||2.0|
|Christopher & Banks||-5.0||-13.0||-6.0||-1.0|
|Gap (U.S. stores)||-3.0||-5.0||-4.0||-9.0|
|Wet Seal||-8.2||5.0||-5.7< font>||0.6|
|BJ’s Wholesale Club||5.9||3.0||7.8||3.0|
|Wal-Mart (discount stores)||2.5||0.4||0.2||2.6|
|SOURCE: COMPANY REPORTS|