A TOUGH MARCH FOR RETAILERS
Byline: Jennifer Weitzman
NEW YORK — Dismal sales swept through the retail industry last month, as stormy weather and perceptions of worsening economic conditions kept consumers at home. Consequently, several companies issued quarter profit warnings on Thursday, including Sears, Roebuck & Co., Wal-Mart, Neiman Marcus, Pacific Sunwear and TJX, and expressed concerns about spring business ahead.
Typically, March sales comprise roughly 40 percent of first-quarter sales and are driven by full-priced fresh spring fashion. But last month, even some top chains with consistently strong performances, such as Talbots and Kohl’s, showed surprising declines.
Federated Department Stores’ lowered its same-store sales guidance for the remainder of the year, to flat or up 1 percent, from 2 percent, and analysts applauded the move, calling it a realistic step.
“Weather was a factor in many parts of the country, but we think deteriorating consumer confidence in the wake of current economic uncertainty is also having a significant impact on our sales,” James M. Zimmerman, Federated’s chairman and chief executive officer, said in a statement.
While many retailers were hoping an earlier Easter would spur sales, cold and wet weather through major markets deterred shoppers. Some analysts also said that spring fashions are not that compelling and lack newness anyway, though there was some business in basics as well as fashion denim and polo shirts. However, Talbots, where recent offerings have been well-received, said there were 130 stores closed for a day or more during the month due to bad weather, and it saw comp sales decrease 8.1 percent.
The bulk of major retailers reporting Thursday posted same-store declines in the mid-single-digit range, though the specialty-store sector appears the most hurt. Department stores also showed less severe drops, while discounters generally fared better, with low-single-digit gains.
Credit Suisse First Boston’s softline comparable-store sales index was down 3.5 percent compared with a 1.3 percent gain in hardlines. Many retailers said the West Coast, where normal to above temperatures prevailed, fared better.
“March was certainly disappointing, at the lower end of expectations,” said Richard Baum, retail analyst at Credit Suisse First Boston. “There were a broader range of disappointments among the specialty stores than the department stores because they are dependent on apparel only and don’t have nonseasonal businesses to offset the softlines.” Of the 15 specialty companies that Baum covers, 10 reported March sales were worse than expected. Only Hot Topic and American Eagle Outfitters did slightly better.
Michael Exstein, also with Credit Suisse First Boston, warned: “Fasten your seat belts, it is not going to be easy out there.”
Saying it was a poor month, Exstein said: “Clearly we are seeing the downside of rapid expansion of square-footage growth and capital investment put in place over the past two years. At the same time, you are seeing consumers decelerate spending.”
Dana Cohen with Banc of America Securities, said: “The issue is that people knew the month would not be pretty,” and they still performed under expectations.
Even without considering the weather, Baum said that April may be difficult too, as a result of Easter falling on April 15 rather than on April 23, giving the month one less weekend of pre-Easter sales, compared with two last year. He expects retailers in April to be promoting earlier and deeper, and first-quarter earning results to be pressured.
The month showcased a variety of concerns. Robert Buchanan, analyst at A.G. Edwards, said Neiman’s, Nordstrom, and Saks Fifth Avenue took hits due to the jittery stock market, while consumers shopping more moderate chains held back due to concerns over high fuel prices and job prospects.
“It was an ugly month,” Buchanan said, adding that his same-store sales index was up 1.2 percent, although the analyst said he was expecting a gain of 1.9 percent. Buchanan said he does not expect much improvement in April, and that the industry average over the past four months is up only 1.7 percent, compared to a 6.4 percent gain in the summer of 1999.
In addition to declines announced last week at Neiman’s, down 4.7 percent, and Nordstrom, down 1.1 percent, Saks Inc. reported a 6.9 percent drop.
One upbeat note came from The May Department Stores Co., which showed a gain of 5.2 percent. The company said the month benefited from Easter occurring two weeks earlier this fiscal year and by a major sales promotional event shifting into March from April last year. However, the company said April sales will be adversely affected by the shifts.
Unlike other chains, J.C. Penney Co. said it expects first-quarter earnings per share to be at, or slightly above, the high-end of analysts’ expectations of 2 to 11 cents. The chain reported March comps rose 2.7 percent, its first increase since last May.
“Women’s apparel sales increased in the high-single digits with double-digit increases in sportswear, outerwear and career sportswear; and women’s accessories increased mid-single digits,” a Penney’s spokeswoman said, adding that women’s has been gaining over the past nine months.
Other moderate department stores did not fare as well. Sears reported a 5.3 percent decline in comps, below expectations. Alan J. Lacy, chairman and ceo, said that a slowing economy and cold weather hurt weather-related seasonal apparel and lawn and garden merchandise, which accounted for more than one-third of the comp decline.
Dillard’s Inc. suffered a 13 percent drop, while Kohl’s was down 1.9 percent.
In the discount arena, Kmart and Target reported slight increases, 1 percent and 3.4 percent, respectively. “For the fifth consecutive month, we have met or exceeded our sales expectation,” said Chuck Conaway, chairman and ceo of Kmart, which may have gotten a lift by the reintroduction of its BlueLight special.
Kmart’s gain “was accomplished while reducing advertising for the month in comparison to our historical trend and also facing adverse weather conditions throughout the country that affected our seasonally sensitive business,” Conaway said.
Interestingly, Wal-Mart warned that it would fall short of the 32 cents Wall Street was expecting it to report for its first quarter, blaming cool weather depressing spring apparel sales and gardening sales. Still, Wal-Mart’s March comps rose 3.3 percent.
In the specialty arena, American Eagle Outfitters, Chico’s F.A.S., Christopher & Banks, Deb Shops and Hot Topic led the pack with gains, while Abercrombie & Fitch, Ann Taylor, Eddie Bauer, Gadzooks, Gap, Intimate Brands, The Limited, Pacific Sunwear and Talbots were all down.
Gap fell 8 percent, with chief financial officer Heidi Kunz saying on a conference call that all weeks and geographic regions were challenging. All Gap brands turned in negative comps, with Gap domestic at mid-single digits; Banana Republic, high-single digits, and Old Navy, in the low teens. “Relative to last year, markdowns were accelerated and broader across all division, resulting in total merchandise margins well below last year’s level,” she said.
Talbots said same-store sales fell 8.1 percent. Arnold B. Zetcher, chairman and ceo, cited “a shift in the start of our mid-season sales, which we moved one week later in the month versus last year because of the strong early spring selling trends.” He added that due to the later start of the sale, Talbots expects April comp results to be in the positive high-single-digit range.
J. Crew Group, which posted a strong fourth quarter, cited a 15.6 percent drop in its retail division for the month. “Overall, our sales results for 2001 have been disappointing,” said Mark Savary, ceo, in a statement. “The weakness in sales is partly attributable to the current economic environment, partly to unseasonably cold weather and partly to product misses on our part.” He said the results will negatively impact first-quarter operating results.
Strategies at both American Eagle Outfitters, up 5.3 percent, and Hot Topic, ahead 9.6 percent, to focus on niche audiences continued to work. Laura Weil, cfo at American Eagle Outfitters, said that the chain “experienced a meaningful pickup in business with its spring two-floor set.” Key items were capris and knit tops, including halters, tanks and tube tops offset by disappointing dress sales.