STRONG FALL PROMPTS SOLID YULE FORECASTS FROM WALL ST., STORES
NEW YORK — Although retail stocks have been taking a beating lately, Wall Street finally has some good news for stores.
With solid third-quarter results in from leading retailers, financial analysts see relatively strong same-store sales growth of 2 to 4 percent for the holiday period.
With 38 days until Christmas, a lot of merchants see pretty much the same thing.
Both camps, with a few exceptions, expect total sales to grow 4 to 6 percent, an improvement over last year’s 3 percent. Further, they see apparel outperforming hard goods because of the introduction of new, better-priced lines, and because consumers have already stocked up on computers, big-screen televisions and household appliances.
There’s more optimism than there has been in a long while, even with personal bankruptcies at high levels, a lack of really hot items and five fewer selling days between Thanksgiving and Christmas. Retailers say that with the presidential election now history, inflation and unemployment down, inventories under control and consumer confidence up, there’s no way they won’t come out ahead.
Following is a cross section of retailers, consultants and Wall Street analysts giving their take on the season.
Allen Questrom, chairman and chief executive officer, Federated Department Stores: “Nobody really knows about Christmas until it’s over. My sense is there is a lack of the ‘I’ve got-to-have-it’ kind of items this season. There’s no big toy or electronic game, but that works to our advantage as a department store. With their broad assortments, department stores will be the first place people will go.
“Warm weather clothing will be very important, particularly considering last year’s winter experience. Sweaters, hats, mufflers, gloves — all over the Northeast and Northwest — as well as cosmetics and fragrances continue to be a strong part of the Christmas business. We continue to have great strength in glassware, better collections, new better-priced lines from Ralph Lauren and Liz Claiborne, eveningwear, dressed-up career looks, more casual careerwear for dress-down days, novelty men’s shirts and ties — all of those have been very strong.
“Our plan is for 2.5 percent comp-store increases, following our current plan. There’s an opportunity to be better than that. The customer feels a lot better about the future. We’re also up against a couple of years of weak business. Now the apparel business is so much stronger.”
Arthur C. Martinez, chairman and ceo, Sears, Roebuck: “I feel quite good about Christmas. The larger economic picture is a very positive one. Interest rates are down. Off last year’s tough season for the industry there will be improved performance. We were ahead of the pack last year, and we will do as well as we did last year. We had over 6 percent comp-store increases last year. I’m not predicting any better than that.”
Brian Kendrick, vice chairman, Saks Fifth Avenue: “We feel good about Christmas. We’re hitting our plan in stride, and nothing is giving us any indication that Christmas is not going to be good. However, it’s early and the big days are ahead of us. We’re all geared up for a shorter selling season. I would not be surprised to see the environment get more promotional. We don’t drive our sales promotionally like some of the other retailers do, but we’ll still work harder at it. We’re up against some pretty tough comps. Last year, Saks’ fourth quarter was up 10.5 percent. So we expect to beat last year’s dollar sales numbers.”
Barger Tygart, president and chief operating officer, J.C. Penney: “We have an optimistic view of how customers will shop for the holidays. As you know, we finished the third quarter with high single-digit gains. We still feel we’ll do mid-singles for the fourth quarter. Women’s should be mid-to-high single digits ahead for the fourth quarter. I’ve been in four parts of the country in the last few weeks, and optimism is running high because of the economy and employment levels, plus we’ve got the election behind us.”
Ted Marlow, president, Henri Bendel: “The way our calendar works, I’m concerned about my November business, just based on where Thanksgiving is falling. We’re expecting November to be flat in the best-case scenario, and we have our December business planned up 6 percent. We’re not 100 percent sure how this calendar is going to treat us.
“We’ve had good deliveries and feel we’re in line to get under way earlier if the customer wants to do that. Our holiday windows will be in by Nov. 20, so we’re ready to get under way about a week earlier than last year.”
Gene Pressman, co-chairman and co-ceo, Barneys New York: “I think in luxury goods, the business will be good. It’s been good and will continue. November has been not super strong, but I’m confident that we should have a pretty good Christmas season. Last year, we had over 14 percent comp-store increases, so this year we’re being a little more conservative.
“It’s important for us to have unusual items and special things. That’s what’s going to bring people in. In the designer area, we’re bringing a lot of early spring and, of course, some resort, so there will be some exciting merchandise on the floor. In California and Texas they’ll get a jump on the season. When people see new merchandise, they buy it.”
Thomas Gould, vice chairman, Proffitt’s: “We’re forecasting a very good Christmas based on current trends. Department stores did better than other sectors in October sales, and we expect that to continue. We believe our regional buying teams have fine-tuned our assortments to better serve our customers on a market-by-market basis.”
Robert Friedman, chairman and ceo, Loehmann’s: “We don’t peak the way department stores do in the fourth quarter. The key quarter for us is the third. It’s the biggest apparel quarter. Every indication points to a good Christmas. Third-quarter results [throughout the industry] seem to be strong. They should carry through to the fourth quarter.”
Analyst Richard Baum, Goldman Sachs & Co.: “We’re halfway into the third-quarter reporting period and, nothing really has changed [in the pattern of retail results]. The department stores, apparel specialty stores and discounters of apparel have been doing better than retailers of hardlines.
“We’ve seen a bell curve, with a handful of companies topping estimates, a handful failing to meet projections, but most coming in on target.
“A lot of it comes down to year-ago comparisons. The ones with the easiest fourth-quarter comparisons clearly stand the most to gain, like Ann Taylor, whose comps were down 15.2 percent, Charming Shoppes, down 11 percent, and The Limited Inc., down 4 percent. Retailers facing tougher comparisons include Tiffany, up 13 percent in the prior-year period, The Gap, up 4 percent and Ross Stores, up 4 percent.”
High-yield bond analyst Margaret Cannella, Citicorp Securities: “We’re comfortable with the low end of Wall Street’s fourth-quarter earnings estimates for retailers, and that’s largely because apparel is still selling very well. Fresh styles, new colors and the cold weather are all pluses. And inventories are still in good shape, despite the fact they climbed a bit in September.
“In many cases, Wall Street’s third-quarter estimates were too high. Now, we’re seeing a correction from an overbought environment for retail stocks.
“I think Sears will continue to do well on the apparel side, and I think Wal-Mart and May Co. are positioned to do well.”
Analyst Maura Hunter Byrne, J.P. Morgan Securities: “I’ve been fascinated to see how early Christmas goods have come into the stores. I’ve been into Abercrombie & Fitch, and it looks great. I saw the new holiday line for Express last week in Columbus, and I thought it looked terrific. It looks like there are a lot of fun fashion items and plenty of color.
“The outlook for The Gap is guardedly optimistic, but they feel it’s too soon to gauge how the consumer will react. I think they got a little tentative when their August and September sales slowed.
“There’s been such a pickup in department store business during the week after Christmas that some chains are buying in anticipation of that pattern and are planning for promotional sales.”
Analyst Peter Schaeffer, Dillon Read & Co.: “The business isn’t going to be easy with five fewer shopping days this year, but I still expect gains over last year — probably an overall increase of 5 percent, with comps up 2 to 3 percent. I believe the strong chains, such as Sears, will continue to do well, and it looks like there’s a rebound at Penney with their comps over the last four months.
“I expect a healthier promotional climate than last year, with a lower but steadier level of promotions. The shortened holiday calendar this year could be turned into an advantage by retailers who launch a barrage of advertising, reminding shoppers of the reduced season and possibly creating early momentum.”
Tracy Mullin, president, National Retail Federation: “With a 6 percent increase, holiday sales should approach $466 billion this season from $440 billion in 1995. Retailers expect the sales increase to contribute to solid profit margins.”
Arnold Aronson, partner, Levy, Kerson, Aronson & Associates: “My sense is we will have a better Christmas than the past two Christmases at least, but I don’t know where there’s evidence for 5 percent store-for-store increases. There has been no sustained business momentum over the past several months. There has been almost a complete disregard, in the prognostications, for the effect of having five less selling days between Thanksgiving and Christmas. The stores will cram more business in less time, but there is a limit to the productivity they can do on an incremental basis. You can’t cram that much into less time.
“There is positive momentum, with new apparel introductions. The mood is good, but it’s reflected in increases at high-priced stores. I’m not yet seeing anything in the department store sector that is very exciting. However, inventory levels have been well administered, expenses tightly controlled, and even with 2 to 3 percent store-for-store increases, retailers will be more profitable than last year.”
John Konarski, vice president of research, International Council of Shopping Centers: “Holiday season sales in shopping mall specialty stores are expected to increase 4.5 percent over the 1995 season, ahead of the year-to-date pace of 3.4 percent. Mall operators are in a better position now than they were in 1995. Consumer confidence is high, and the apparel sector is showing signs of vigor for the first time in more than three years. The big winners will be jewelry stores, retailers selling computer products and family apparel chains like The Gap, Abercrombie & Fitch and Polo/Ralph Lauren.”
Irwin Cohen, co-chairman, Trade Retail & Consumer Products Group, Deloitte & Touche: “Consumers are more confident in their jobs, and boomers are spending strongly. Two-thirds of retailers project an increase in profits this holiday, compared to 22 percent last year. Thirty percent, compared to 22 percent last year, will be tightening inventories. This dose of caution reflects last season’s disappointing results and retailers’ concerted efforts to manage inventories. The sharpest reduction is in apparel. Price promotions, or markdowns, while important, are ranked somewhat lower in 1996 by both consumers and retailers, as the other value attributes take center stage.”