Deprived of last year’s government stimulus checks and enthusiasm for summer fashion trends, consumers once again chose cash conservation over conspicuous consumption in May, sending all but a handful of retailers to same-store sales declines.
The month offered little relief for high-end merchandisers and another endorsement of retailers offering strong value propositions. Those dynamics are expected to remain in place this month, as will nostalgia for the government rebates of 2008.
Luxury retailers Saks Inc. and Neiman Marcus Inc. once again were among those hit hardest, weathering double-digit declines, as was Abercrombie & Fitch Co., the prestige player among teen retailers. Off-price retailers The TJX Cos. Inc. and Ross Stores Inc. shined, and department stores were down across the board, with midtier giant Kohl’s Corp. faring best with a nearly break-even performance. Despite its efforts to identify itself more with value and less with style, Target Corp. disappointed with a larger-than-expected decline.
May’s comparable-store sales results, unlike those for April, generally fell short of expectations, pressuring the S&P Retail Index down 3.89 points, or 1.2 percent, on Thursday to 335.21 even as the broader Dow Jones Industrial Average and S&P 500 indices rose 0.9 and 1.2 percent, respectively, on a drop in the number of weekly unemployment claims and improvements in financial and energy stocks.
“It’s apparent from the numbers that the value players or retailers with a value message are continuing to win,” said Matt Katz, managing director at Alix Partners LLC. “I’m not surprised at all by the results. We’re in the early innings of a pretty long game.”
Reflecting on the prospects for the rest of the summer, Katz noted, “We may have hit bottom, but I don’t see where we have any traction to start a climb.”
May’s numbers weren’t propped up by the world’s largest retailer, Wal-Mart Stores Inc., which said last month it would discontinue its participation in the monthly reporting ritual. However, Wal-Mart, preparing for its annual meeting today, still managed to hold the spotlight by delivering welcome news in exactly the area many believe is most critical to a recovery in consumer spending — employment. The Bentonville, Ark.-based firm said it will create 22,000 U.S. jobs, more than 1,000 in states including Arizona, California, Michigan, New Jersey, Utah, Virginia and South Carolina. In October, it said it would open or expand 142 to 157 of its namesake units in the U.S. during the current fiscal year.
The vacuum created by Wal-Mart’s decision to stop reporting comps put greater focus on Target Corp.’s results, which missed expectations with a 6.1 percent decline versus the 4.3 percent slide estimated by analysts.
TJX stood by its second-quarter guidance after reporting a 5 percent increase in May comps. Carol Meyrowitz, president and chief executive officer, emphasized the firm’s strength wasn’t based on price alone.
“Our strategy of running the business with lean inventories supports our close-to-need buying and we are flowing extremely fresh fashions to our stores,” she said.
A strong accessories performance helped Kohl’s lead the department store sector despite a 0.4 percent comp drop, and J.C. Penney Co. Inc. credited the strength of its women’s wear business, offset in part by weak jewelry sales, as its comps declined 8.2 percent, better than the 9 to 12 percent expected.
Macy’s Inc. posted a 9.1 percent drop, in line with management’s expectations, while regional players Dillard’s Inc., The Bon-Ton Stores Inc. and Stage Stores Inc. fell 12, 12.1 and 7.2 percent, respectively.
The decline in the luxury market continued in May. Upscale retailers Neiman Marcus Inc. and Saks Inc. reported comp declines of 27 and 26.6 percent, respectively. Saks said “relative strength” in its direct and Off 5th businesses offset “continued weakness across all merchandise categories” in its full-line stores and that it expects midteen declines for the second quarter, which kicked off last month.
“I think the consumer is looking for value, and it doesn’t feel right to be ostentatious,” said Deborah Weinswig, Citigroup’s broadlines retail analyst.
While Nordstrom Inc. did relatively better with a 13.1 percent comp contraction, higher-end specialty stores reporting on Thursday also were vulnerable to the pullback.
Abercrombie & Fitch’s 28 percent decline was the sharpest fall of the month. By division, comps were down 25 percent at the namesake division, 32 percent at Hollister, 28 percent at the abercrombie kids’ unit and 33 percent at Ruehl, which is undergoing a strategic review.
A&F has slowly picked up its promotional cadence after emphasizing brand protection in the early stages of the recession. But what was once pegged as a pricing issue appears to be a more serious fashion problem, Citigroup retail analyst Kimberly Greenberger said.
Across all four divisions, Greenberger said the women’s business comped down more than 30 percent and men’s categories fell in the high teens to high 20s. Because women tend to shop more by fashion than brand, Greenberger suspected that the company has been losing share to fast-fashion firms.
“That preppy Americana look is definitely out of favor right now,” she said, adding that recovery will be difficult for Abercrombie because this style is part of the “brand’s DNA.”
The striation of comp results by price also could be seen within Gap Inc.’s May numbers, which overall declined 6 percent. The sharpest divisional decline — 14 percent — was at the tonier Banana Republic unit, while the only increase came from the resurgent, value-driven Old Navy, which was up 3 percent.
Thomas Filandro, retail analyst at Susquehanna Financial Group, cited “inconsistent merchandise” for the difficulties at Banana Republic and called its May numbers and the 11 percent decline at the Gap unit “very disappointing.”
Greenberger and Filandro agreed Old Navy, helped by its $1 flip-flop event in May, was resonating with customers.
Eclipsing The Buckle Inc.’s 13.4 percent increase, Aéropostale Inc. boasted the month’s best comps, a 19 percent increase, helped by a graphic T-shirt business characterized by “newness and innovation,” according to Greenberger.
“Aéropostale is on an incredible run of capturing material market share and top- and bottom-line upside,” said Brean Murray, Carret & Co. retail analyst Eric Beder. “We see no roadblocks in sight.”
Teen retail rival American Eagle Outfitters Inc., which recently has been profiting from strong dress sales, said May comps were off 7 percent.
While most analysts have heralded AEO’s new merchandise mix, Beder was more skeptical, saying its “value pricing has not driven material positives. We view the company as the poster child for the current ‘stabilization’ and unworthy of anywhere near its current multiple.”
Hot Topic Inc. disappointed analysts with a 6.4 percent decline, below consensus estimates of a 4.1 percent drop. The Wet Seal Inc. recorded an 8.4 percent decline for the month, with an 11 percent increase at Arden B. offsetting the namesake unit’s 12.4 percent fall. Zumiez Inc. comped down 20.7 percent, principally because of weak hard goods and juniors’ businesses.
Despite a mixed bag of May results, Michael Niemira, chief economist and director of research for the International Council of Shopping Centers, said, “There are ‘green shoots’ within the retail sector. Although overall retail demand was weak, there were individual retailers that have begun to see some notable improvements.”