NEW YORK — American consumers continued to search for bargains in February as discount and off-price retail chains continued to gain market share, posting double-digit comparable-store gains in many cases and driving the overall industry to better-than-expected monthly sales results.

While those hoping for signs of a turnaround at Gap Inc. were disappointed by its 17 percent comp drop, J.C. Penney provided the single biggest upside surprise with a 12.5 percent gain in February comps, more than twice the expected rate. Penney’s shares were rewarded with a $2.08, or 10.8 increase, price boost, closing the day at $21.27 in New York Stock Exchange trading.

Value-oriented stores such as Wal-Mart, Target, Kohl’s, Ross Stores and TJX clearly benefited from shoppers’ demand for value and convenience in February, but department and specialty apparel stores are still facing an uphill battle to win back consumer dollars. Spring-like weather buoyed February results, allowing for earlier and stronger full-price spring selling and potentially setting the stage for improved gross margins in the first quarter.

“Consumers aren’t exactly on a spending spree, but are buying the things they need,” Todd Slater, an analyst at Lazard Freres, said.

Shari Schwartzman Eberts at J.P. Morgan said February was “a continuation of the discount store domination driven by consumers’ real desire for value and off-the-mall convenience.”

The Gap division’s comp decline of 24 percent among its U.S. stores weighed down its parent; it wasn’t alone among apparel specialists coping with large same-store setbacks. Eddie Bauer was down 17 percent and Abercrombie & Fitch off 9 percent.

Gap’s chief financial officer Heidi Kunz said on a pre-recorded conference call, “Gap (stores) did not sell as much spring fashion inventory as expected and we will be clearing merchandise in March.”

Kurt Barnard, president of Barnard’s Retail Trend Report, noted that the gains among the value-oriented stores “came at the expense of traditional department stores again. Dillard’s, Nordstrom, Federated, May and Saks were bad. Their recovery will be tough as the economy improves. They face a difficult year ahead.”

Angela Selden, the North American managing partner for Accenture’s retail industry group, said department store continue to struggle as they have lost their ability to be meaningful to core customers. “In an attempt to be all things to all people, they are challenged to be meaningful to any kind of customer,” she said.

According to the Goldman Sachs monthly comp-store index, same-store sales rose 5.5 percent, better than the 5.1 percent gain expected, and still better than the 3.4 percent increase in January. Again, led by Wal-Mart, discounters pushed ahead 9.5 percent in February. Department stores inched up .3 percent while specialty stores receded 3.1 percent.

Retailers faced a surge in apparel sales during the first three weeks in February, due to the spring-like weather, but the cold snap during the last week “kiboshed” the month, Slater said. In addition, he said retailers were caught flatfooted with low inventory levels due to the aggressive promotions in January, costing them some sales.

While among the lowest revenue months for most retailers, February did provide stores with an opportunity to get an early read on spring trends. Analysts believe that this, coupled with stringent inventory and expense controls and a gradually improved economy, could bode well for first-quarter retail results.

“More full-price sales in February gives retailers a better indication of what is selling,” Richard Baum, a softline retail analyst at Credit Suisse First Boston, said. “Retailers can reorder key items and less of what is not selling so earnings should at least be as good as guidance, if not better.”


Gap Inc.’s 17 percent February decline, which brought its string of comp declines to 23 consecutive months, compared to an 11 percent decrease in the 2001 month. The San Francisco-based company said its Gap division dropped 24 percent, Banana Republic was off 10 percent and Old Navy declined 12 percent. Kunz said on a conference call, “Overall, sales missed beginning of month projections due to weak results at Gap and International, which were partially offset by better-than-anticipated results at Old Navy. Merchandise margins came in slightly ahead of expectations but remained below last year’s levels, a result of lower markdown margins and higher sales at markdowns.”

In a separate development Thursday, Gap said that it had completed its convertible bond offering, with an additional $180 million in bonds purchased. That brings the total cash take to $1.38 billion.

Also reporting negative comps were Abercrombie & Fitch, Eddie Bauer and Talbot’s, which were down 9 percent, 17 percent and 17.7 percent, respectively. The shortfalls reflect lower inventory due to lower winter carryover merchandise, resulting from post-holiday markdowns. Although inventory was down 30 percent and winter carryover inventory 50 percent lower than a year ago at A&F, the retailer said it was encouraged by the initial selling of its spring assortment. Talbot’s uncharacteristic decline stemmed from a shift of clearance activity into late January from February, the company said.

The Limited repeated last month’s gain as it reported a 2 percent comp increase and a 4 percent increase in its apparel units. “Sales were above initial expectations and we are pleased with the initial response to spring merchandise,” a company spokesperson said, warning that February is not necessarily a predictor of the remainder of the quarter. Express and Lerner New York comps both rose 5 percent, while Limited store comps fell 1 percent, all above expectations.

Comps at Intimate Brands (IBI) grew 1 percent, comprised of a 7 percent comp increase at VS stores and beauty, due to strong selling of its Very Sexy Miracle bra and “giftable sleepwear,” and an 8 percent decline at Bath & Body Works. Direct sales were down 7 percent.

Limited also announced that it revised its exchange offer for all outstanding publicly held shares of IBI, the 1995 spinoff of which it currently owns 84 percent. Under the amended offer, all IBI shareholders will be offered 1.10 shares of Limited common stock in a tax-free exchange for each outstanding share of Intimate Brands Class A common stock.

Other specialty store gainers included Deb Shops (10 percent), United Retail (7 percent), Mothers Work (5 percent) and Christopher & Banks (2 percent). As reported, Chico’s FAS previously reported a 10.7 percent increase and Wet Seal a 20.5 percent leap.


J.C. Penney Co. (up a surprising 12.5 percent) and Kohl’s (up 14.4 percent) bucked the trend toward soft department store sales in February.

Penney’s performance outstripped expectations, on strength in women’s, men’s and children’s apparel. “Strong apparel sales reflect a good response to merchandise assortments, which are being supported by aggressive marketing and promotional programs,” said the firm in a statement.

Sears, Roebuck & Co. comped down 3.1 percent. Apparel sales continued to be weak with double-digit declines across most merchandise categories. Chief executive and chairman Alan Lacy noted, “While overall sales remain soft, we continue to be very pleased with our inventory position as well as gross margin and expense performance.”

Federated Department Stores’ comps slid 2.8 percent, in line with the firm’s expectations, while same-store sales at May Department Stores Co. dipped 2.7 percent. Dillard’s posted a 5 percent comp decline.

Saks Inc.’s department store group’s comps decreased 1.9 percent, despite strength in better women’s apparel, accessories, outerwear and cosmetics.

As luxury department stores’ same-store sales headed south, women’s apparel showed resilience. Saks’ Saks Fifth Avenue unit comped down 3.4 percent, with better performances in women’s contemporary, bridge and designer sportswear. Nordstrom Inc.’s comps retreated 4.1 percent on decreases in its full-line stores in all geographic regions. The women’s active, intimate apparel, cosmetics and kids’ wear categories all posted increases. Neiman Marcus Group’s comps fell back 1 percent as softness in precious jewelry, men’s apparel and furnishings offset strength in women’s contemporary sportswear, ladies’ shoes and fine apparel.


Wal-Mart Stores Inc.’s comps continue to pace the retail sector with an 11 percent increase in the namesake division. Total comps for the world’s largest retailer, which includes Sam’s Club, rose 10.3 percent.

“Customer traffic continues to account for two-thirds of the comp increase,” said a company spokesman on a recorded call. Women’s apparel sales, he said, benefited from some early spring weather and “were good throughout the country.”

Comps at Target Corp.’s flagship division shot up 10 percent, above its plan for a low- to mid-single digit increase. Top-performing categories included electronics, pharmacy and entertainment, and were held back by weaker performances in jewelry, accessories and men’s apparel.

The low-cost concept of off-price stores resonated with consumers in February as TJX Cos. comps leaped 7 percent and Ross Stores’ moved ahead 13 percent.

TJX president and chief executive Edmond English attributed his company’s strong sales to “the exciting, fresh merchandise that continues to flow through our stores at great values. By managing with very liquid open-to-buy positions at all of our businesses, we are able to take the best advantage of opportunities in the marketplace.”

It wasn’t rosy for all off-pricers, though. Factory 2-U Stores comped down 10.2 percent on reduced inventory and advertising. Still, women’s and junior’s sportswear managed to post mid single-digit increases for the month.


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