NEW YORK — Sales arrived in dribs and drabs, and later than stores had wanted, but when December was finally over, retailers did manage to eke out modest same-store gains for the month.
Higher-end stores and those with unusual merchandise were the stars for the season, but the calendar year’s final month also saw Federated Department Stores and May Department Stores Co. produce gains at the same time. Kohl’s was down and Gap Inc. flat, but Ann Taylor and nearly all the better merchants excelled.
Snowy weather hurt results at the start of the month, but consumers, perhaps motivated by promotional events, came back with a vengeance in the weeks before and after Christmas, helping to salvage the holiday.
On the other hand, moderate players like Sears, J.C. Penney and Kohl’s failed to make the grade, as shoppers appeared to remain concerned about job security. As a result, many waited until the last minute — and the arrival of deeper discounts — to shop.
After reporting a disappointing 1.2 percent comp decline, Kohl’s Corp. warned Thursday it sliced its fourth-quarter profits to 68 to 70 cents a share, from its previous outlook of 89 to 95 cents. Analysts on average expected it to report earnings of 88 cents. Kohl’s stock fell $3.70, or 8.1 percent, to close at $41.80 on New York Stock Exchange trading. Its performance was among the reasons that the Standard & Poor’s Retail Index fell 1.5 percent Thursday, while the S&P 500 rose 0.5 percent.
“It seemed that consumers either traded up or down, but the moderate apparel makers struggled as [clothing] had to compete with other products such as digital cameras and iPods,” Dawn Stoner, an analyst with Pacific Growth Equities, said. “Consumers that were able to afford more were willing to spend more for a product that is more unique and a better value in their eyes.”
Looking ahead to the first half of 2004, most analysts had sunny views, noting easier comparisons and tax rebates should boost results. In addition, significant sales of gift cards this year will likely extend the holiday shopping season into January.
Overall, the Goldman Sachs comp index for December rose 4 percent, better than the 3.2 percent expected and far better than the paltry 0.9 percent gain in December 2002. All sectors of retailing grew, led by the discount channel, which amassed a 5.4 percent gain, better than the 4.6 percent expected and up from 2.3 percent last year. Specialty apparel and off-price chains rallied 3.3 percent, up from the 0.7 percent increase last year. Department stores crept into positive territory, increasing 1.1 percent, versus a 2.1 percent decline last year.
Of 50 firms monitored by WWD, 30 finished with increases and 18 with decreases while two were flat, superior to the 18-30-2 record of December 2002.
While Gap Inc.’s flat comps disappointed, Ann Taylor’s 26.2 percent blowout reflected an improved holiday assortment and a strong environment for business-related apparel.
“Trends were consistent with the fall season and November,” Stoner said. “Companies that had been struggling continued to struggle, while those with strong momentum seemed to maintain it and outperform as well.”
Steven Skinner, a partner in the retail industry group at Accenture, said he was pleased with December’s sales results as well as the first-half outlook.
He said retailers benefited from better consumer confidence and their ability to lure consumers without having to resort to steep markdowns. Higher stock prices and a degree of geopolitical stabilization have also contributed to a more upbeat feeling.
“All of these factors coupled with the fact that commodity prices haven’t gone through the roof means consumers felt relatively more confident about spending discretionary funds for Christmas,” Skinner said.
According to the Accenture Consumer Holiday Shopping survey, 65 percent of the respondents said they spent the same as or slightly more on holiday shopping in 2003 than they did in the previous year. Almost one-third (32 percent) said they would have spent more money if the prices had been better, 13 percent would have spent more if more interesting products had been available and 47 percent said they spent the amount they wanted to.
Jeffrey Stein, an analyst with McDonald Investments Inc., said although the top-line results were better than expected, sales were promotional, leading him to question the upside to many retailers’ fourth-quarter earnings results.
“Sales came late and with a fury,” he said. “Consumers are clearly responding to aggressive promotions and they are trained to play the waiting game.”
Coupled with Kohl’s Corp.’s poor performance, Gap Inc.’s worse-than-expected comp increase of 1 percent ignited a sell-off of retail shares. By division, Banana Republic comps rose 10 percent, followed by a 2 percent gain at Old Navy and a flat comp performance at Gap stores.
“Consistent with national mall traffic trends, traffic was weakest in the first three weeks of the month. However, sales performance strengthened in weeks four and five as customers began shopping and spending just before and right after Christmas,” the company said. “Importantly, throughout the month, our product and markdown strategies drove year-over-year merchandise margin improvement, with better margins at regular price and markdown.”
Gap also said Ivy Ross is joining the firm’s Old Navy unit as executive vice president of product design and development, reporting to ON president Jenny Ming.
Limited Brands posted a better-than-expected 6 percent comp increase, driven by Bath & Body Works, up 16 percent; Express, up 10 percent, and Limited stores, up 6 percent, but offset by a 5 percent decline at Victoria’s Secret. Apparel comps increased 9 percent. LB said it expects comps to increase in the low-20s range in January due to the aggressive clearance sales at apparel as well as semiannual sales at VS and B&BW. As expected, VS December comps were negatively affected by a shift in the semiannual sale to January. In addition, sleepwear and the post-Christmas bra sale were disappointing.
Among the most pleasant surprises in December’s results was Ann Taylor Stores’ 26.2 percent comp increase as AT stores rose 28.8 percent and Loft division numbers surged 25.4 percent. AT raised its fourth-quarter earnings expectations, for the second time this quarter, to 54 to 56 cents, from 43 to 45 cents. It continues to expect January comps to rise 3 to 5 percent for both divisions.
“Our outstanding performance was the result of a new holiday gift-giving strategy that began in the fourth quarter of last year and focused on product, inventory investment, marketing and in-store environment,” chairman J. Patrick Spainhour said. “Our client’s acceptance of our holiday product, as well as our overall offering, exceeded our expectations for December at both divisions.”
Pacific Sunwear of California, Aeropostale and Hot Topic continued to shine brightly, with comps up 11.9 percent, 5.7 percent and 10.1 percent, respectively. Based on the holiday results, PacSun raised its fourth-quarter earnings outlook to 41 cents a share, versus its previous guidance of 37 cents, assuming a January comp increase between 5 and 10 percent.
At PacSun stores, comps expanded 11.9 percent, consisting of increases in men’s (mid-single digits), girls’ (high-single digits), footwear (greater than 20 percent) and accessories (high teens). Comps at Demo rose 12.7 percent. The retailer achieved a 38 percent increase in gift-card sales for the period between Thanksgiving and Christmas.
“We were very pleased with our holiday business and the continuation of strong sales trends,” Greg Weaver, chairman and chief executive, said. “The strong trends in footwear, accessories, girls’ and guys’ denim and T-shirts bodes very well as we enter 2004.”
It also raised the number of new stores it expects to open in 2004, to 110 stores from 100 that were previously announced. The 10 additional stores will be Demo units.
Aeropostale also raised its fourth-quarter guidance to 66 cents, ahead of its previous guidance and in line with the current First Call consensus earnings estimate. HT raised quarterly guidance to 44 cents, from 42 cents, and 2003 guidance to 96 cents.
Urban Outfitters, which usually doesn’t report monthly results, said comps in December grew by 18 percent at both Urban Outfitters and Anthropologie and were up 20 percent for the combined months of November and December.
On the other hand, Abercrombie & Fitch and American Eagle Outfitters continued to struggle. At A&F, comps fell 13 percent, with A&F stores down 16 percent and Hollister’s comps falling 1 percent. In addition, A&F cautioned it now expects to report fourth-quarter earnings in the range of 90 to 93 cents, less than the 94 cents expected by Wall Street.
A&F said comps were very weak until Christmas and improved dramatically with the implementation of its annual post-Christmas sales event. Comps were up in double digits in all three businesses between Christmas and the end of the month.
Other winners were Bebe Stores, 7 percent; Guess, 13.1 percent; Claire’s Stores, 6 percent; Chico’s FAS, 24.3 percent, and Cache, 3 percent.
Those that lost ground included Gadzooks, 25.2 percent; Wet Seal, 7.3 percent; Mothers Work, 5.4 percent, and Talbots, 3.8 percent.
Gadzooks said it has decided to discontinue testing its four-unit Orchid division and close its stores as soon as possible. In addition, it expects to close up to 35 underperforming Gadzooks stores pursuant to lease expirations or kick-out clauses by the end of April.
A late surge of holiday selling helped May Department Stores Co. and Federated Department Stores Inc. to comp gains in December, marking only the second time either firm posted a same-store sales increase in the calendar year.
Federated, operator of the Macy’s and Bloomingdale’s nameplates, among others, said comps grew 1.2 percent, which slightly exceeded the firm’s guidance of between a 1 percent decrease and a 1 percent increase as well as the consensus estimate of a 0.2 percent comp increase. Sales were stronger than anticipated in the last two weeks of December, said chief executive officer Terry Lundgren in a statement, which more than offset the impact of snowstorms in the Northeast felt earlier in the month. Federated last comped positively in September, when it registered a 3.2 percent increase.
May Co., for its part, rode strength in costume and silver jewelry, handbags, ladies’ tops and various cold-weather apparel categories, among others, to post a 1.1 percent rise in same-store sales. Excluding the remaining 30 stores May has yet to divest or close, comps would have advanced 1.2 percent. Comping up for the first time since a 1.8 percent climb in July, the parent of Lord & Taylor and Filene’s, among others, saw comps easily beat its own plan of a 4 to 6 percent drop in same-store sales, as well as the negative 1.8 percent consensus estimate.
Among the major national moderate chains, Sears, Roebuck & Co. and J.C. Penney Co. saw their paths diverge in December, with the former reporting a 0.8 percent comp decrease in domestic stores and the latter recording department-store growth of 4.3 percent. At Sears, “a surge in last-minute shopping and post-holiday clearance were not enough to overcome soft comparable-store sales in early December,” said ceo Alan Lacy in a statement. Apparel and accessories were among the weaker categories, the firm added on a prerecorded call, collectively comping down in the mid-single-digits. Penney’s, however, exceeded its plan of a low-single digit advance, as strong late and after-holiday selling allowed all geographic regions and merchandise categories to produce higher comps.
As for the better retailers, they continued to build on recent success. Saks Inc.’s Saks Fifth Avenue division enjoyed a 9.6 percent increase in same-store sales while the department store group posted a 2.9 percent gain. Nordstrom’s same-store sales swelled 9.1 percent, helped, in part, by brisk sales of accessories and cosmetics, while Neiman Marcus Group said demand for women’s contemporary sportswear and fine apparel, among other products, pushed comps ahead 14.8 percent.
Hybrid retailer Kohl’s Corp., however, was “very disappointed” with a 1.2 percent same-store sales decline that led the firm to slash its fourth-quarter earnings forecast to 68 to 70 cents from 89 to 95 cents. Late selling and deeper-than-planned discounts that eroded gross margins are to blame, the firm said.
Among the regional chains, Dillard’s said comps regressed 4 percent and Bon-Ton Stores reported a 1.9 percent decrease, but Gottschalks posted a 0.6 percent same-store sales improvement.
Weakness in women’s apparel couldn’t prevent Wal-Mart Stores’ namesake units from comping up 3.9 percent last month. U.S same-store sales grew 4.3 percent, well within the firm’s 3 to 5 percent forecast, and benefited from a 6.1 percent comp improvement at Sam’s Club. Girls’ apparel was one of the better-selling categories, Wal-Mart said on a prerecorded call, adding that the comp gain was split between average ticket price and traffic.
At Target Corp., Target stores likewise experienced weakness in women’s apparel, but that was more than offset by strength in other merchandise to push comps up 5.6 percent. However, continued declines at Marshall Field’s, which dipped an on-plan 0.3 percent, and Mervyn’s, which fell a well-below-plan 7.3 percent, partially offset Target stores’ gains to produce a total corporate comp increase of 4.1 percent.
Among the major off-price chains, The TJX Cos. registered a 4 percent increase, thanks to its strategy of “flowing fresh merchandise into the stores right up until the holidays,” said chief executive officer Edmond English in a statement. Ross Stores, for its part, exceeded plan and enjoyed healthy gross margin expansion on a 4 percent comp gain. At Retail Ventures, a 9 percent rise in same-store sales at Filene’s Basement coupled with double-digit growth at Discount Shoe Warehouse more than offset a 0.3 percent slide at Value City Department Stores to push overall corporate comps up 3 percent.
Stein Mart Inc., meanwhile, benefited from strong sales of ladies’ sportswear and accessories, among other merchandise categories, to comp up 3.5 percent, its first same-store sales improvement since October’s 1.5 percent increase.
Two regional players, however, did not fare as well last month, as Factory 2-U Stores Inc. and ShopKo Stores saw comps fall 5.8 percent and 2.1 percent, respectively.