JANUARY SALES BETTER THAN ANTICIPATED
Byline: Jennifer Weitzman / Evan Clark
NEW YORK — Retailers cleaned up their inventories in January, but even those with strong comparable-store sales results failed to spruce up their bottom lines.
Coming off a weak holiday with hardly a shortage of inventory, stores posted results that analysts characterized as somewhat better than expected and stressed the month’s small contribution to annual sales.
That may have proven to be small consolation for specialty retailers, including Gap, Ann Taylor and Eddie Bauer, who saw their comps decline 12, 14.3 and 12 percent, respectively. Gap’s drop sent its shares down $2.95, or 10 percent, to $26.61, while Ann Taylor shares dropped 4.7 percent to $26.39 and those of Spiegel, Eddie Bauer’s parent, dropped 9.2 percent to $6.81.
Yet many consumers responded to the combination of winter leftovers and early spring deliveries. According to Dorothy Lakner with CIBC Oppenheimer, January delivered what is was supposed to — inventories, for the most part, left clean.
“On balance, comps were quite decent, but in most cases the margins were meaningfully depressed,” said Lazard Freres’s Todd Slater. “Since January is a big clearance month, sales came at a cost, so although there were some decent sales numbers, margins were nightmares.”
The department store channel did “pretty well” in January according to Steve Kernkraut, an analyst with Bear Sterns. Though he cautioned that it’s very difficult to discern any trends from January because it is “very much a clearance month” and can produce varying results.
Ahead for the month in the department store channel was Federated, which saw comps rise 3.7 percent.
“Frankly, Dillard’s, Saks Fifth Avenue and Nordstrom generally had sub-par performances, but those were expected given the November and December results,” noted the analyst.
The Goldman Sachs January comparable-store sales index for specialty apparel retailers dropped 1.4 percent, while department stores were up 1.2 percent and discounters led the pack with a 5.1 percent average increase in comps. The retail composite index rose 3.4 percent overall, but much of that strength was supplied by hard goods specialists, whose comps were up 8 percent.
The results “produced a mixed bag of heroes and problems,” UBS Warburg’s Richard Jaffe said.
Barbara Miller, softline retail analyst with Goldman Sachs, agreed. “Same-store sales were better than expected, but mostly due to successful clearances, which do not give a big read on spring.”
She said retailers will be challenged by difficult comparisons from last year as well as by a shortage of clear fashion trends to lure shoppers to the stores and malls. To be successful today, Miller added, companies need to behave with more focus on lifestyle retailing and draw from their merchandise strength rather than rely on consumer demand.
Accordingly, several chains — including Chico’s, Talbots, Cache, Christopher & Banks and Deb Shops — reported strong full-price selling to customers already pleased with the early arrival of spring merchandise, building upon momentum the retailers built last year.
In addition, youth-oriented specialty retailers like American Eagle, Hot Topic, Wet Seal and Pacific Sunwear continued to produce strong gains. Dennis Van Zelfden with Robinson-Humphrey said the group is benefiting from a demographic that is working and is not affected by the cost-of-living increases. In addition, he said most teen are pleased with today’s fashions which, although preppy, are sexier and tighter.
The Gap said the month proved to be more promotional than anticipated. Execution problems, particularly at its Old Navy unit, continued to wreak havoc on the largest retail chain last month. Each unit’s comps declined — Gap Domestic in the mid-single digits, Gap International, low-double digits; Banana Republic, high-single digits and, most ominously, Old Navy, low 20s.
Commenting on January’s performance, Gap chief financial officer Heidi Kunz said, “From a comp and margin perspective, each of our brands fell short of our forecasts. To clear merchandise, we took deeper markdowns than anticipated. That resulted in total merchandise margins falling below last year’s level.”
Given January results, Kunz said, uncertainty in consumer spending and a promotional retail environment will continue to pressure sales and margins. As a result, “we expect the negative mid-single digit comp trends we experienced in fourth quarter 2000 to continue in first quarter 2001.” At Ann Taylor, chairman J. Patrick Spainhour, said results reflect “merchandise assortments for the holiday period (that) overemphasized contemporary, fashion-forward styling, and too high a percentage of our assortment featured occasion wear.” He warned its offerings in the first half “will continue to be under assorted in the more classic merchandise that our clients prefer.”
The more customer-focused, it seemed, the better stores did. Talbots, a leading specialty retailer of classic apparel, reported a 4.1 percent gain on strong full-price selling and said it would raise fourth-quarter earnings expectations. Similarly, Chico’s F.A.S., which caters to women aged 35 to 60, reported a 44.8 percent increase in same-store sales.
The teen sector was littered with retailers reporting stellar results. Wet Seal, which until recently faced fashion miscues and declining merchandise margins, reported a 23.3 percent comp gain, exceeding expectations, and said it sees strong sales ahead. “
At American Eagle, same-store sales gained 5.9 percent. Laura Weil, chief financial officer, said she is “pleased with overall sales levels in January as fall and holiday merchandise sold well.” Pacific Sunwear’s same-store sales increased 3.8 percent.
One of the more pleasant surprises came from Limited, which reported a 5 percent comp increase, mostly as a result of significant markdowns. Still, the firm said given the U.S. economic situation, it’s planning for modest profit growth in 2001. But at Intimate Brands, of which Limited owns 84 percent, comps fell 1 percent due to significant markdowns.
Federated Department Stores reported comps gained 3.7 percent in January, exceeding the Cincinnati-based firm’s internal plan. Sales for total stores jumped 14.5 percent for the period.
Steven Kernkraut, an analyst with Bear Sterns, pointed to Federated as a winner in this channel. The firm outperformed its competitors with merchandising agility. A strong footwear program drove traffic and helped full-priced selling, according to the analyst. May Department Stores followed Federated closely with a 3.4 percent leap in comps. Consistent category out-performer Kohl’s saw its same-store sales rise 7.1 percent in January.
J.C. Penney said same-store sales at its department stores fell 6 percent during January. “Sales for the period were more promotional than last year,” it said in a statement that echoed the sentiments of most other retailers.
Overall sales for the Plano, Tex.-based firm were buoyed by a 11.2 percent increase for its Eckerd drugstores division.
Sears, Roebuck & Co. saw a 2.6 percent increase in comparable revenues at its domestic stores. Alan Lacy, chairman and chief executive officer of the Hoffman Estates, Ill.-based department store noted, “Softlines performed below our expectations although certain softline categories, such as home fashion and jewelry, did well.”
Weaker softlines performances partially offset strong double-digit gains in several hardlines categories such as appliances, electronics and sporting goods, said the ceo.
Double-digit sales increases in the fine apparel, intimates and men’s clothing helped generate a comp increase of 5.5 percent at Neiman Marcus Group. However, comps dropped 1.4 percent at Saks Inc. and were down 0.4 percent at its department store division. While dresses and suits, juniors, intimate apparel and accessories performed well at Saks’ department stores, coats and outerwear, men’s sportswear, men’s furnishings and children’s apparel were softer, according to the company.
Among regional department stores, Bon-Ton had an 8.7 percent comp drop while Elder-Beerman’s decline was 2 percent. Michael Gleim, vice chairman and chief operating officer of Bon-Ton, noted, “January sales were impacted by reduced levels of clearance inventory and reflect our continued focus on inventory management.”
Coats and cosmetics had strong increases at Bon-Ton, while women’s moderate sportswear, junior sportswear and intimate apparel were among the standouts at Elder-Beerman.
Wal-Mart Stores reported a 5 percent rise in January comps for its Wal-Mart division. Strongest sales came from the housewares, electronics, pet supplies, floral, household paper products and cosmetics categories.
The month, which started out “very strong” for the company, benefited from an easy Y2K comparison and more normalized weather, but saw weakness in discretionary items such as appliances, office furniture and selected apparel categories, which were not as strong as in previous months. The firm’s basics apparel category came in above division average, though. Health and beauty aids also remained strong during the period, said the company.
Target Corp. discount stores, under the Target nameplate, saw comps rise 3.5 percent during the quarter, in line with the company’s expectations. The strongest sales were in areas that were entertainment oriented, especially DVD players, followed by intimate apparel, driven by a new assortment of sleepwear.
The company added that Mossimo apparel for both men and women was performing well.
With strong sales in the Mid-Atlantic and Northeast regions, the firm reported inventories were in “very good condition” at month’s end. For February, Target expects to see low- to mid-single-digit increases in comparable sales for all of its divisions.
January same-store sales at Kmart increased 4.3 percent over a year ago.
Chuck Conaway, chairman and ceo, noted, “January marks our third consecutive month of strong positive gains in same-store sales, customer count, guest in-stock position and a substantial increase in customer service.”
While ShopKo’s comps inched up 0.8 percent, the largest decrease for the sector was Ames’s 8 percent drop in January comps. Joseph Ettore, president and ceo, noted, however, that the results were “just slightly off our expectations.” He said inventories for the month were down almost 18 percent due to actions put in place last fall.
“This inventory reduction mirrors the current economic environment and reduced our sales this month, since January sales for most retailers are driven by clearance and markdowns from excess holiday inventories,” said the ceo.
Off-pricers had mixed comps for the month. Factory 2-U saw comps rise 1.9 percent, in line with its expectations, while TJX Cos. saw its comps increase 4 percent in the month. Value City’s same-store sales fell 2.5 percent.