Pressured by tough year-over-year comparisons, unseasonable weather and a shift in holiday shopping patterns, retailers reported soft same-store sales for December.
An extra shopping day created by a Monday Christmas, a late sales surge in the month and unprecedented reliance on gift cards wasn’t enough to buoy sales — especially at the specialty apparel retailers. But there were winners. American Eagle Outfitters and Zumiez delivered robust comp gains of 13 and 11.5 percent, respectively, while Nordstrom and Saks posted gains of 9 and 11.1 percent, respectively.
Overall, results came in as expected. “The bottom line is last year’s December was very strong, and January was good, as well,” said Kevin Regan, senior managing director at FTI Consulting and a retail specialist. “We’re not surprised at the results that we’re seeing. We expected a softer holiday season than last year, and that’s how it’s trending.”
Of the 49 retailers tracked by WWD, 30 saw a same-store sales increase, two were flat and 17 declined. The mass retail channel had the highest average, with a 3.3 percent increase. Department stores were up 2.5 percent on average, and specialty stores were up 0.5 percent.
Generally, retailers do not include online sales in their same-store sales figures.
According to data compiled by the International Council of Shopping Centers, chain store sales in the U.S. climbed 3.1 percent overall for December, higher than the anticipated forecast for the month. Luxury chain stores and wholesale clubs were the leading sectors for last month in the ICSC index with gains of 8.2 and 6.2 percent, respectively. Department stores reported a 3.6 percent increase, and discount stores reported a 2.3 percent increase. Apparel chain stores fared the worst, with a sales decline of 0.9 percent.
“More so than in past seasons, this holiday season came down to the week before Christmas as consumers waited to the last minute to complete their shopping,” said Michael Niemira, chief economist and director of research, ICSC. “Overall, this holiday season was a moderate one for retailers with some sectors performing stronger than others.”
In addition to tougher year-over-year comparisons, Regan said FTI’s analysis of the holiday season has now been expanded through to the end of this month because of the increasing popularity of gift cards, which are typically redeemed in the month following Christmas. Increasingly, retail analysts and industry experts consider January to be an important “third act” to the holiday season.
Trish Walker, partner in Accenture’s retail practice, said critical to the success of the holiday season’s third act is having the right merchandise mix to draw shoppers into stores. This is especially true for teen retailers, whose core shoppers are home from college.
Consumers gave over $24 billion worth of gift cards this holiday season — a 35 percent gain over last year, according to estimates, said Donald Soares, a principal in CapGemini’s retail practice. Most consumers start spending those cards from Dec. 26 onward, he said.
Aside from an extended holiday shopping season, Soares said warm weather also impacted results, leading retailers to increase the depth of their markdowns. “Overall, it was a very disappointing December for most retailers, especially apparel retailers,” he said. Weather patterns, which had their greatest effects regionally, meant consumers weren’t buying winter clothes.
According to a report from Planalytics, a weather forecasting firm that provides retail analysis, clothing and footwear retailers experienced the most negative impact due to the unusual weather patterns and broadlines and home center retailers benefited the most. Warm temperatures in the eastern two-thirds of the U.S. dampened purchases of winter clothing and footwear. In addition, there was unseasonably wet conditions in the Southeast and on the West Coast, Planalytics said.
The volatile specialty store sector showed the largest gap between winners and losers, analysts pointed out. The sector’s tally ranged from standout performances at American Eagle, Zumiez and children’s retailers to big misses’ at Gap and Limited.
American Eagle beat Wall Street and analyst expectations with its 13 percent increase for December. “American Eagle looks to be one of the bright spots of the ’06 holiday season,” said Dorothy Lakner, analyst at CIBC World Markets Corp. in a research note. In particular, Lakner pointed to American Eagle’s core sweater, jeans, fleece, knits and aerie categories for driving sales. The company’s fashions were spot-on this year, she said, leading to fewer promotions. American Eagle said it had success with its holiday mix, and its transition to a spring assortment on Dec. 24 also helped its sales.
“Our excellent performance for the holiday season and throughout fiscal 2006 reflects the strong appeal of our brand, our ability to deliver on-trend fashion that fits our customer’s lifestyle, as well as our focus on disciplined operational execution,” said Jim O’Donnell, chief executive officer of American Eagle.
Specialty players that also performed well last month include Guess, with a same-store sales gain of 9.6 percent, which is against a 17.5 percent gain last year. Gymboree posted a 15 percent gain on top of a 16 percent increase last year, and Zumiez’s 11.5 percent increase was over a 20.9 percent gain last year. Aéropostale reported a 1.7 percent increase over an 11.4 percent rise last year.
Other companies in the channel didn’t fare as well. Same-store sales at Gap and Old Navy continued to slide, decreasing 9 and 10 percent, respectively, on top of declines the previous year. Results fell short of industry expectations. The entire Gap chain fared worse than expected, Soares said.
Limited Brands apparel declined 7 percent, and despite growth at its Victoria’s Secret and Bath & Body Works banners, all three missed company guidance. Ann Taylor was off 5.3 percent.
The department stores continued to turn in mixed results reflective of the dichotomy created by the continued strength of the luxury shopper and the reluctance of middle- and lower- income shoppers to spend. Nordstrom was the sector standout with its 9 percent increase on top of a 7.7 percent gain last year. The company beat industry expectations and its own low, single-digit guidance by a significant margin.
Saks also surprised with its 11.1 percent increase for December on top of growth for the same period last year of 3.1 percent. Same-store sales at Federated climbed 4.4 percent. Industry observers said the company’s performance of late indicates consumer acceptance of the Macy’s rollout.
“Sales results indicate that the consumer is responding favorably to the nationwide Macy’s strategy and we remain confident that our future direction is sound,” said Terry Lundgren, chairman, president and ceo of Federated.
The discount channel also continued to contradict itself. On the heels of its first decline in more than a decade, Wal-Mart reported a 1.3 percent increase in same-store sales for December, just above company guidance. Target reported a 4.1 percent increase in comps, which was in line with previously released expectations, the company said on a prerecorded sales call.
Industry observers said the mixed results for mass merchants weren’t unexpected as economic pressures such as gas prices and housing are more likely to impact mass shoppers. On a brighter note, Costco was up 9 percent and TJX Cos. climbed 6 percent.
With gift cards moving sales after the traditional end of the Christmas season, industry observers said it remains to be seen how the rest of holiday expenditures will play out.
“As we look toward January, we expect comp-store sales to increase by 2.5 to 3 percent as consumers begin to redeem their gift cards in earnest,” ICSC’s Niemira said.