THE FINAL VERDICT IS IN: CHRISTMAS WAS A DUD FOR MOST RETAILERS
Byline: Thomas J. Ryan / Jennifer Weitzman
NEW YORK — Hoping to share news of sensational sales, retailers instead ended the holiday season pouting about profits.
Forget the desired frenzied finale. A slowing economy, gyrating stock market and higher fuel prices all seemed to conspire against holiday sales momentum in 2000. Many chains, particularly discounters, also were up against a tough December 1999, when shoppers bought in bulk in anticipation of a Y2K-related catastrophe. Severe winter storms across the Northeastern quarter of the country were the last straw, as stores futilely attempted to build momentum in the final week of the holiday season.
The result was a rash of profit warnings Thursday.
“It was pretty weak,” said Marcia Aaron with Deutsche Banc Alex.Brown. Merrill Lynch estimated that same-store sales for broadline chains for the holiday season, which also includes November, limped ahead 1.4 percent, worse than the 2.6 percent gain in the recessionary Christmas of 1990.
The weak results were hardly a surprise as many department stores and discounters on weekly calls noted that sales were progressing slowly while shoppers waited until deep into the month to start serious shopping. “The month got weaker and weaker every week,” said Linda Kristiansen, at UBS Warburg.
Of 50 retail firms tracked this December: 24 had gains, 24 declines and two were flat. By contrast, of 49 retailers covered for December 1999: 43 had gains and only six had declines.
A few chains still bucked the trend. Kohl’s shocked analysts with a 14.8 percent same-store hike.
“It’s virtually astounding,” said Steven Kernkraut, at Bear Stearns. “It’s just mesmerizing considering all the noise in the world and the economy. I think Kohl’s just proved they’re a great retailer.” A small group of specialty chains also managed double-digit gains: Talbots, Chico’s FAS, Christopher & Banks, American Eagle Outfitters and Wet Seal.
But several others — Gap, The Limited, Intimate Brands, Ann Taylor, Abercrombie & Fitch, Tiffany & Co. and TJX Cos. — warned of profit shortfalls. Analysts also cut the ratings at Wal-Mart, which experienced its worst Christmas since 1994. Sears, Roebuck & Co. announced the closings of 89 underperforming stores, including 53 NTB stores, which sell tires and batteries, as well as 30 hardware stores and four regular Sears stores. About 2,400 jobs will be eliminated.
In addition, several retailers reported they would be taking a cautious approach to inventory investment as well as introducing expense-reduction plans.
The Deutsche Banc specialty apparel same-stores index was down 1.1 percent for December compared with a 3.8 percent increase last December. Salomon Smith Barney’s broadlines index was up 0.4 percent.
By category, jewelry was the clear loser, as Tiffany joined a growing list of jewelers reporting dismal holiday sales and its shares fell $6.44, or 17.3 percent, to close at $30.69. Luxury chains clearly have slowed from their rapid sales pace earlier this year. Other weak areas for many included men’s apparel, children’s, dresses and home as well as seasonal categories such as trim-a-tree. Footwear appears to have scored a particularly strong season,
Cold weather drove sales of sweaters, outerwear and furs. Other solid gains were cited in cosmetics, intimate apparel and women’s accessories. Women’s apparel also was cited by many as among their better sellers, with career especially standing out. But analysts said too much sameness in fashion hurt several chains.
“It seemed everyone had a chunky sweater, which led to competitive pricing,” said Deutsche Banc’s Aaron.
Retail stocks have received a major boost over the last two days from the Federal Reserve Bank’s cut in interest rates, and some analysts seemed encouraged. “There is light at the end of the tunnel,” said Jeff Feiner at Lehman Bros. “I think we reached bottom.”
But most analysts still believe the fundamentals remain weak at least through the first quarter, and it might take time for consumer spending to bounce back.
“The rate cut is real positive for the long term,” said Bear Stearn’s Kernkraut. “But in reality, it’s not going to do much to help spending near term and avoid sluggish sales for the next couple of months. Warm weather last February and March make for some difficult comparisons. By May or June, you should see a lift up for these chains, but until then, it’s going to be a very tough retail environment.”
The big winner was Kohl’s, which banged out a 14.8 percent comp gain versus a plan for a 4 to 6 percent gain. “All markets performed well and contributed to our strong holiday sales performance,” said Larry Montgomery, Kohl’s ceo. A spokeswoman said all regions and categories delivered double-digit gains, with women’s apparel leading the way. “Sales were really strong from the very beginning of the month,” she said. “We kept all the basics in stock and we were poised from the beginning to have a very strong season,”
May, with a 1 percent gain, also came in on plan. Analysts said May wisely planned more conservatively than most competitors.
But the majority missed plan. Federated on Wednesday said same-store sales rose 1.2 percent — short of a 3 percent plan — due “at least in part to heightened consumer concerns over a slowing economy.”
Citing weakness in the central region, Dillard’s 4 percent comp decline was slightly below plan.
Comps in women’s, juniors and cosmetics were down 2 percent; accessories, shoes, lingerie and children’s, off 4 percent, and home and men’s slid 6 percent.
Comps at Sears, Roebuck & Co. fell 1.1 percent. “Like other retailers, general industry softness and difficult weather conditions dampened our holiday season sales,” said chairman and chief executive Alan J. Lacy. Softlines were down in the mid-single digits, with women’s down in the low-single digits and men’s and kids declining in the low-double digits. Footwear and home fashions performed better.
With promotions up, J.C. Penney’s comps were down 1.6 percent, slightly above a plan calling for a decline in the low- to mid-single digits. The women’s apparel division had a mid-single-digit gain, led by career sportswear and outerwear; but all other divisions were soft. Some categories showing strength were men’s sportswear, infants, housewares and athletic footwear.
Elder-Beerman blamed “harsh winter weather in the Midwest” for its 0.8 percent comp decline, though it noted strength in furniture, coats, women’s moderate sportswear, intimate apparel and ladies’ accessories.
On a more positive note, Bon-Ton’s 2.3 percent gain was led by “exceptionally strong” sales of coats, shoes and juniors, followed by intimate, accessories, women’s and misses’ sportswear. “We met our inventory and gross margin objectives for the month and we are now transitioning into our spring merchandise,” said Michael Gleim ceo. Also, Gottschalks’ 4 percent increase was paced by women’s apparel and footwear.
Neiman Marcus Group’s same-store sales were up 2.1 percent, in line with a forecast given in November when the chain noticed sales were slowing. At the Neiman Marcus chain, comps rose in the low-single digits while Bergdorf Goodman was up in the mid-single digits. The firm noted that to offset lower-than-planned holiday sales — particularly at Neiman Marcus Stores — and resulting higher markdowns, the company began implementing a previously announced cost reduction plan in December.
Fine apparel, beauty and men’s sportswear performed well at the Neiman Marcus chain, while bridge and men’s clothing were weaker. Neiman Marcus’s online sales more than tripled, following the October 1999 launch of NeimanMarcus.com.
Saks Fifth Avenue Enterprises logged a 3.2 percent slide in comps, primarily due to weakness at the Off 5th outlet mall chain. Comps at Saks Fifth Avenue stores were slightly negative. Weaknesses were seen in women’s designer apparel, dresses, coats-outerwear, men’s clothing, men’s furnishings, and fashion and fine jewelry, though areas checking well included its “gold range” women’s apparel, women’s career sportswear, women’s “Salon Z” apparel (plus sizes) and accessories.
Saks traditional department store group, where comps nudged up 1 percent, saw strength in women’s apparel, coats-outerwear, accessories and shoes. Categories with softer sales performances for DSG in December were dresses, men’s sportswear, men’s furnishings, and children’s apparel.
Tiffany & Co. warned that fourth-quarter earnings may equal last year’s 56 cents a share. Analysts were looking for 65 cents on average.
“While results in the U.S. represent a disappointing year-over-year shortfall to the high single-digit comparable store sales growth that we had planned, they should be evaluated in the context of the 1999 millennium holiday season and its record 27 percent increase in comparable-store sales,” said Michael J. Kowalski, president and chief executive officer. “Combined with weakened consumer confidence and unsettled financial markets, the challenges of the 2000 holiday season were enormous.”
Overall same-store sales for its holiday period from Nov. 1 through Dec. 31 were up 2 percent at constant currencies. In the U.S., comps declined 3 percent. Several other jewelers — Zale, Finlay and Reeds Jewelers — had already warned of poor holiday seasons.
Richard Jaffe with UBS Warburg called holiday 2000 “the worst Christmas I have seen. December fundamentals were pretty tough, perhaps worse than expected.”
For instance, hurt by heavy promotions and disappointing holiday sales at all three divisions, Gap’s comps declined 6 percent. “December was a disappointing month in what has been a difficult year,” said Mickey Drexler, president and ceo. “Our sales were driven primarily by price, not product, which significantly affected our margins.”
By division, Gap domestic and international as well as Banana Republic turned in negative low-single-digit comps, while the troubled Old Navy division’s comp declines were in the low teens.
As a result, Heidi Kunz, chief financial officer, said quarterly consensus estimates of 36 cents were achievable, but said an aggressive promotional environment could shave off between 3 and 5 cents in profits in the fourth quarter.
Kunz said the Gap division’s comps did meet company expectations in December, but at a lower margin. She said she was pleased the reintroduced television campaigns helped improve store traffic at Gap and Old Navy. In addition, she noted sweaters, accessories and outerwear, all key features in the advertisements, were strong performers in both men’s and women’s.
She said Banana Republic’s comps were challenged by last year’s strong performance in cashmere and accessories, while Old Navy’s comps and margins were both disappointing due to significant markdowns and promotional pricing throughout the month.
Limited and Intimate Brands, 84 percent of which is owned by The Limited Inc., also issued fourth-quarter warnings, citing disappointment with holiday sales. Limited is planning for modest profit growth in 2001.
Limited — which operates Express, Lerner New York, Lane Bryant, Limited Stores, Structure and Henri Bendel — reported flat comparable stores sales.
The Columbus, Ohio-based retailer stated that it now expects fourth-quarter earnings per share to be between 53 and 57 cents and expects earnings for the full year to land between 95 and 99 cents, far cries from consensus estimates of 72 cents for the quarter and $1.16 for the year.
“We were generally unhappy with holiday sales,” said chairman and ceo Les Wexner.
Its apparel group turned in a less than expected 3 percent increase in same-store sales, mostly through a 12 percent comp gain at Express. Building on the momentum from the first 10 months, top performers at Express included knit tops and sweaters as well as its core denim.
Lerner New York same-store sales were also above expectations, increasing 8 percent. Lane Bryant’s, Limited’s and Structure’s same-store sales were disappointing, down 7 percent, up 4 percent and down 7 percent, respectively.
Likewise, Intimate Brands turned in disappointing same-store results, down 3 percent. It also said it is lowering its expectations for the fourth quarter and for the full year.
Commenting on IBI, Wexner said, “Our new holiday product assortments were not compelling enough to outperform the strong offerings of a year ago — particularly in an unforgiving economic environment.” As a result, he said the company is planning for modest growth in 2001.
By brand, Victoria’s Secret stores and beauty comps were down 6 percent, hurt by aggressive lingerie pricing and weaker than expected sales with its short and sexy sleepwear and seamless satin lingerie collections. Beauty comps were up due to a fuller and more upscale product assortment. Bath & Body Works’ comps were down 1 percent, better than expected.
Abercrombie & Fitch’s same-store sales fell 11 percent and said that, based on December results, it now expects earnings per share for the fourth quarter to range from 73 to 75 cents, below consensus estimates of 83 cents.
Although chairman and ceo Mike Jeffries said he believed the retailer had a strong merchandise assortment, he said it was unable to generate sufficient store traffic to reach estimates.
Ann Taylor said same-store sales were down .3 percent and that it now expects its fourth-quarter same-store sales to decline in the low single digits. In addition, the retailer said that it would earn in the lower range of 38 to 42 cents a share in the fourth quarter, versus consensus estimates of 45.
Blaming the drop on the competitive holiday 2000 season, the company further accelerated its seasonal promotional activity across all categories and said it would continue this pricing in January, in conjunction with its usual end-of-season sale. In addition, it said sales were affected by severe winter weather in the Northeast that resulted in roughly 50 closed store days.
Jennifer Black with Wells Fargo Van Kasper said in research notes that it may take several months for the company to get back on track.
J. Crew reported same-store sales for December were down 7.2 percent, reflecting “the overall slowing of the economy as well as weakness in our men’s business,” Mark Sarvary, ceo, said.
Still, all was not lost. Those retailers who best captured the hearts and the wallets of consumers throughout the year reported strong results. The sector was carried by e-tailers serving 35- to 50-year-old women, such as Chico’s FAS and Talbot’s, as well as a flurry of junior retailers like American Eagle Outfitters, Pacific Sunwear and Hot Topic. As reported, on Wednesday Chico’s posted a 34.2 percent comp increase in December, American Eagle’s rose 11.8 percent and Hot Topic’s was up 8.1 percent. Thursday saw Pacific Sunwear reporting its comps increased by 5.7 percent.
Talbot’s comps increased 12.9 percent, better than expected, and said that, based on the better than expected sales results in November and December, the company raised its anticipated earnings outlook for the fourth quarter.
“We experienced continued solid regular-price trends,” Arnold B. Zetcher, chairman, president and chief executive, said.
Reporting sales as it announced an acquisition and discontinuation of a start-up venture (see related story, page 12), Wet Seal registered 10.2 percent comp growth and said strong holiday sales and the increasing contribution of January sales to the quarter over the previous three years would help the Foothill Ranch, Calif.-based company to exceed the high end of analysts’ estimates. Kathy Bronstein, ceo, said that sales grew stronger in the last weeks of the year.
Wal-Mart eked out a 0.3 percent same-store gain, missing its plan for a 3 percent same-store gain. The Wal-Mart division was up 0.5 percent and Sam’s Club was down 0.3 percent. Wal-Mart blamed the shortfall on a “weaker-than-hoped-for Christmas season, the impact of last year’s Y2K sales, and the effect of the last several weeks of severe winter weather.”
At Wal-Mart, apparel was weaker than recent months, but that partly reflects an early cold weather that led to full-price sales in November, Wal-Mart said.
Wal-Mart noted that sales from Nov. 24 through Dec. 24 — which includes the day after Thanksgiving and excludes the Y2K-related sales last year — were up in the mid-single digits.
Target’s 0.1 percent same-store decline was well below its forecast for a gain of between 4 to 6 percent. “While December sales were disappointing, with below-plan performance at all three of our divisions, we continue to expect growth in fourth-quarter earnings per share,” said Bob Ulrich, chairman and chief executive of Target. Target said it is comfortable with analysts’ estimates of 53 cents for the period.
Top performers at the Target chain, which registered an 0.9 percent gain, included sporting goods, driven by scooters; shoes, led by fashion boots; intimate apparel, led by sleepwear and robes, and pharmacy. Mervyn’s, which had a 2.4 percent comp drop, saw strength in intimate apparel, accessories and misses’ casualwear-to-work, with jewelry, home and kids the weakest spots.
At Target’s department store division, same-store sales fell 5 percent.
Helped by its decision to stay open for 86 consecutive hours just prior to Christmas day, Kmart’s 0.7 percent comp dip was only slightly below plan. “We are on track to deliver most, if not all, of our commitments while closing the performance gap to our discount competitors in sales growth, in-stock position, working capital productivity and customer service levels,” said Chuck Conaway, chairman and chief executive of Kmart.
Ames, Dollar General, Family Dollar and Shopko were among regional chains with same-store declines. “Throughout the month it was apparent that in making their purchases, shoppers this year were significantly more bargain conscious than they were last year and purchased more sale-priced merchandise,” said Joseph R. Ettore, Ames’s chairman and chief executive.
TJX Cos. said its sales shortfall would cause earnings to come in around 46 cents, missing Wall Street estimates by 3 cents. Last year, it earned 44 cents. “Although we are disappointed with our December sales performance, we are encouraged that, despite the highly promotional environment, our merchandise values stood up well as we were able to achieve our sales targets in all areas of the country unaffected by weather,” said Edmond English, TJX’s president and chief executive. TJX’s comps were up 1 percent.
Ross Stores had flat same-store sales, but that reached the high end of previous guidance with the help of strong sales in the fourth and fifth weeks.
The best categories were juniors, up double digits; home, up mid-single digits, and children’s and accessories, up low single digits. Women’s was flat and men’s was down mid-single digits.