Byline: Jennifer Weitzman / With contributions from Evan Clark

NEW YORK — Weak traffic and deep markdowns left Gap Inc. with yet another month of double-digit same-store sales declines, going against a March trend in which stores capitalized on an early Easter and an improving economy.
Gap’s comps fell another 12 percent in March, and industry analysts expect the bloodletting at the San Francisco-based specialty chain to continue in April, which would give it monthly comp declines for two consecutive years. Gap’s stock responded with a drop of $1.58, or 10.2 percent, to close at $13.86 in New York Stock Exchange trading on a day when the Dow Jones Industrial Average dropped 205.65, or 2 percent, to end the session at 10,176.08.
While the calendar, the early Easter and the new peasant-bohemian fashions all helped March business, observers were quick to point out March gains would negatively impact April comps. Instead, they proposed looking at March and April together to get a more balanced view of spring selling.
Big comp gainers for the month included value-oriented retailers such as Wal-Mart (10.7 percent in its discount stores), Kohl’s (9.1 percent), Target (9.4 percent in its discount stores), TJX (10 percent) and Ross Stores (11 percent), but March also brought gains to higher-end stores such as Saks Fifth Avenue (1.4 percent) and Neiman Marcus (2.5 percent). Boosted by easier year-ago comparisons, a number of specialty stores’ comps improved significantly, including Cato (14 percent), Christopher & Banks (12 percent), Dress Barn (12 percent), Chico’s FAS (11.7 percent), Wet Seal (10.6 percent), The Limited (9 percent), Deb Shops (8.9 percent), Mothers Work (7.6 percent), Pacific Sunwear (7.5 percent), Cache (7 percent), Charming Shoppes (5 percent) and Ann Taylor (3.5 percent). Abercrombie & Fitch logged in with a 2 percent increase, its first increase since April 2001.
But Gap’s double-digit results came on the wrong side of the baseline. “We missed beginning-of-the-month projections, primarily driven by weaker-than-expected comp-store traffic levels, which led to earlier-than-expected markdowns,” said Heidi Kunz, Gap’s chief financial officer, on a morning conference call. “Looking to the remainder of the quarter, the effect of the Easter shift will negatively impact April.”
Based on those comments, Lazard Freres retail analyst Todd Slater said he believes Gap’s April’s comps could be down at least 30 percent.
Gap chief executive officer Mickey Drexler has promised a recovery by the back-to-school season, but industry observers caution that may be harder to execute in light of recent discounting activity. Pointing out that Gap’s full-price selling was weaker than planned in March, Richard Baum at Credit Suisse First Boston said “the fact that the Gap is comping negatively now puts more pressure on the b-t-s equation. If you have another three to four months of sales below plan in terms of full-price selling, consumers aren’t likely to be so receptive to full-priced merchandise.”
However, he continues to endorse Gap’s plan “to deemphasize forward-fashion merchandise.”
According to the Goldman Sachs monthly comp-store index, same-store sales rose 5.6 percent in March, slightly off from the 5.8 percent expected, but better than the 0.7 percent gain in March 2001. Again, headed by Wal-Mart, discounters led the index, with comps ahead 9.2 percent in March, while specialty apparel and department stores dragged down the month, a positive 1.6 percent and negative 0.4 percent, respectively.
Looking ahead to the first quarter, Merrill Lynch broadline retail analyst Dan Barry said he believes earnings should be fairly good because of the easy comps and sales at or above plan. “The economy is better and there are early signs people are buying more fashion, which bodes well for a recovery this year,” he said.
However, Shari Eberts with J.P. Morgan Securities wrote in research notes that surging gas prices could become a burden going forward, especially for discounters.

Gap Inc.’s 12 percent decline was on top of an 8 percent decrease last March and was comprised of a 12 percent comp plunge at both its Gap and Old Navy divisions and a 4 percent decrease at Banana Republic. Both Gap and Old Navy saw a 6 percent decrease in traffic, which led to earlier markdowns.
On the other hand, The Limited Inc. reported a whopping 9 percent increase in its monthly comps, above expectations and compared with a 4 percent drop last year. All divisions were up, including an impressive 23 percent jump at Limited stores, an 11 percent increase at Express and a 9 percent spike at Lerner New York. Comps at Victoria’s Secret rose 10 percent, while comps at Bath & Body Works fell 3 percent.
Ann Taylor’s 3.5 percent increase compared with a 6 percent decrease last March. By division, comps were down 0.6 percent for the Ann Taylor division and up 17.1 percent at Ann Taylor Loft.
J. Patrick Spainhour, chairman, said in a statement: “We continue to be pleased with our full-price selling and gross-margin rates at both of our concepts. Product acceptance at Ann Taylor stores is evident by strong full-price sales results, although sales gains in our suits, dresses and casual categories were offset by a softness in tops.”
While April comps are forecast to be in the negative mid-single-digit range, AT raised first-quarter guidance to 60 to 62 cents a share and the second quarter to 34 to 36 cents, due to the expected improvement in gross margins from full-price selling. Third- and fourth-quarter earnings remain unchanged in the range of 63 to 66 cents and 44 to 48 cents, respectively. Full-year earnings guidance is now $2.01 to $2.12. Analysts were forecasting earnings per share of 53 cents for the first quarter and 32 cents for the second, according to First Call.
While AT raised earnings estimates for the first and second quarters, The Talbots Inc. warned it was lowering its first-quarter earnings guidance to 53 to 55 cents a share compared with last year’s 62 cents and below the previously announced range of 63 to 65 cents, due to softer-than-expected trends at the start of its midseason sale and additional and deeper markdowns. March comps rose 3.2 percent.
Arnold Zetcher, ceo, said the earnings shortfall “is confined to the first quarter” and to two specific categories, dresses and structured suits. “The casual side of our business is performing well, which accounts for a much larger proportion of our late spring and summer assortments,” he said.
Declines came from: American Eagle Outfitters, 1.3 percent; Bebe, 3.5 percent; Eddie Bauer, 12 percent, and Wilsons The Leather Experts, 7.6 percent.

Federated Department Stores Inc. continued to comp down with a 0.2 percent drop in March. “Sales strengthened significantly in the last week of the month, which enabled us to achieve our expectations,” said chairman and ceo James Zimmerman in a statement. Due partially to the Easter calendar shift, the parent of Bloomingdale’s and Macy’s is looking for April’s same-store sales to slide 4 to 5 percent, tracking toward a 2 to 3 percent drop for the first quarter. The May Department Stores Co.’s comps declined 6.9 percent and were adversely affected by the shift of a promotional event into April this year from March last year.
J.C. Penney Co.’s department stores posted a 6.8 percent same-store sales increase, with children’s apparel racking up the best performance. Sales in all apparel categories, though, were termed “good.” Catalog comps dropped 22.5 percent, as expected, absorbing the negative effects of eliminating unprofitable promotions and media spending.
Continuing its charge, Kohl’s Corp.’s same-store sales ramped up 9.1 percent. Larry Montgomery, ceo, noted he was pleased with “customer response to our spring assortment.”
Comps at Dillard’s Inc. were up 5 percent. Increases were registered in children’s (21 percent), women’s and juniors (8 percent), cosmetics (5 percent), accessories, shoes and lingerie (4 percent) and men’s (3 percent). Nordstrom Inc.’s same-store sales slid 1.1 percent on weakness in the Southwest and Central states. Merchandise categories bringing in increases included cosmetics, women’s designer, better, contemporary and active, and children’s wear. Saks Inc.’s Saks Fifth Avenue unit saw a 1.4 percent comp increase in the month with strength in women’s contemporary and bridge sportswear, American and European designer collections, women’s “gold range” apparel, fragrances and cosmetics. Saks’ department stores were stronger with a 3.2 percent increase. Overall, the firm posted a 2.4 percent comp increase in March.

On a recorded call, a Wal-Mart spokeswoman said sales of Easter-related products were “good” while sell-through was slightly below last year. Sales were slightly below expectations for the first four weeks of the fiscal month and “came on strong” in the days leading up to the holiday. “Unfortunately, when Easter comes this early it tends to sneak up on many customers who don’t seem to realize that the holiday is imminent,” he said. At Wal-Mart ladies’, girls’ and boys’ apparel saw “good sales.”
The Bentonville, Ark.-based retail giant is projecting April comps to be in the low- to mid-single-digit range for both its Wal-Mart and Sam’s Club divisions. Overall, first-quarter same-store sales should hit the upper end of the firm’s previously expected 5 to 7 percent increase.
Target Corp.’s overall same-stores sales posted a 6.8 percent increase, buoyed by strength at the discount stores, while both Mervyn’s (down 2 percent) and Marshall Field’s (down 6.7 percent) missed expectations.
In a statement, ceo Bob Ulrich attributed the stronger-than-expected results to “continued strong sales momentum at Target stores,” which should also help Target “meaningfully outperform prior EPS expectations” for the first quarter. Wall Street had been expecting the firm to post first-quarter profits of 33 cents.
While Factory 2-U’s comps were off 7.9 percent, the month brought increases to ShopKo Stores (7.6 percent), Stein Mart (9.3 percent) and Value City (3.6 percent).

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