SAME STORES SUFFER COLD SPELL
NEW YORK — Clean inventories and cold temperatures added up to a cool comparable-store performance for retailers in February.
Unseasonably cold, wet weather combined with a sour economic outlook and high energy prices kept customers on the sidelines. The whittling down of winter stocks prevented consumers from either getting what they might have wanted or looking at the early spring merchandise retailers had to offer. While weather hurt some stores, the presence of fourth-quarter carryover actually helped others, such as Abercrombie & Fitch.
Yet, even with double-digit declines at Gap and high-single-digit declines at some other major chains, many analysts still believe retail executives do not have to press the panic button just yet. Results in many cases were better than feared and there was a host of mitigating factors, including strong year-ago comps and February’s small contribution to first-quarter profits.
According to Credit Suisse First Boston’s February 2001 Comparable-Store Sales Index, February results rose 1.9 percent, compared to 5.3 percent a year ago, while expectations were for a 2 to 3 percent gain. Goldman Sachs Index reported a 1.6 percent gain during the month, from 5.5 percent a year ago, although this month’s results came in slighty better than the 1.4 percent it was expecting. Goldman said composite department-store comps were down 1.6 percent versus an estimate of a 0.2 percent decline and apparel specialty stores were down 3.5 percent versus a negative 4.5 percent estimate.
However, Goldman said, discounters’ comps were up 3.9 percent, even better than the estimate of 3.1 percent.
ING Baring’s Christine Kilton Augustine said although the month was “lackluster as expected due to tough comps, real winter weather and a backdrop of a tough economic environment,” she said retailers “don’t need to get panicky.” She pointed out that inventories are in “good shape” as retailers planned conservatively on placing spring orders and fall-winter carryover was mostly cleared out in January.
“March is a long month and, although it hasn’t started off well, it is only a couple of days old,” she said, adding that spring selling could get an earlier boost with Easter falling a week earlier this year.
Joseph Grillo with Deutsche Banc Alex.Brown said February’s results, the second worst month in over three years, were made tougher by the difficult weather and comparisons in a challenging environment. Although he remains “cautious,” he said March and April should prove to be “modestly better.”
But for others, the spring outlook is muted or “cautiously optimistic” at best. They said the news of falling stock prices, declining consumer confidence, higher debt levels and escalating corporate layoffs are becoming reality checks for jittery consumers who are either buying less or are more value-price oriented.
“There is nothing magical that will send consumers rushing back,” Richard Baum with Credit Suisse First Boston said.
Thomas Filandro, retail analyst at J.P. Morgan Securities, said that “this is an emotional business and emotions get tied into how we shop.” He contrasted last year’s lack of price consciousness to the current situation, in which sticker shock appears to be playing a greater role.
Against this background, discounters including Wal-Mart, Kmart and Target either hit or beat expectations. Department-store results were “blah,” according to Goldman Sachs’ George Strachan, but still came in within their lowered expectations range, with Kohl’s and Saks Fifth Avenue excelling. Women’s ready-to-wear continues to save the day for department-store groups like Federated Department Stores, The May Department Stores Co. and Sears, Roebuck & Co. offsetting dismal performance at their men’s business.
The specialty sector appeared weakest but still managed to turn in a mix bag. Offsetting standout results from Abercrombie & Fitch, Cache, Chico’s, Christopher & Banks and Talbot’s, the group was hurt by disappointing results from Gap, American Eagle Outfitters, Ann Taylor, The Buckle, Charming Shoppes and Intimate Brands.
Looking ahead, Todd Slater at Lazard Freres said while February was as difficult as expected, the compilation of negative macroeconomic trends could make the second-half recovery that retailers are hoping for appear overly optimistic.
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Specialty Stores
Gap’s comparable-store sales were down 11 percent, with results challenging in all brands in all weeks and across all regions. Gap Domestic was negative mid-single digit; Gap International, low-teens; Banana Republic, low-double digit and Old Navy, high-teens.
Although the company said it is focused on providing a more compelling mix of basics and fashion, Heidi Kunz, chief financial officer, said customers are showing a mixed response to spring merchandise, resulting in accelerated markdowns. In addition, basics continue to underperfom, while the company’s freshest products, like fashion denim and women’s trench coats, are selling well.
At the Gap brand, fashion denim performed well in styles like women’s hip-hugger jeans and men’s worker jeans, but women’s cable-knit cardigans and men’s woven shirts have not. At Banana, men’s remains most challenging, with weakness in woven shirts and fashion bottoms.
American Eagle Outfitters’ U.S. comps were down 4.5 percent, below expectations. There were low stocks of cold-weather and wear-now merchandise due to better than expected sales in the fourth quarter while spring transaction items sold more quickly than planned. Top spring performances came from denim and knit tops while shorts fell below plan.
On a day when it made key executive appointments and reported lower earnings for the quarter, Ann Taylor’s comps sales were down 6.1 percent. Ann Taylor Stores was down 9.9 percent while Ann Taylor Loft Stores were up 12.2 percent.
Chairman J. Patrick Spainhour said, “As we anticipated, Ann Taylor store division sales were negatively affected by lingering product and assortment issues from those we experienced during the second half of fiscal 2000. Our spring collection continues to reflect an overemphasis on contemporary, fashion-forward styles.”
Based on continued product and assortment issues, the company said it expects comparable-store sales in the low single-digit negative range and projects earnings per share for the first quarter to be in the range of 33 to 37 cents.
The Limited’s comps were flat in February while comps in its branded apparel business increased 4 percent. Lerner New York was the company’s best performing division, with comps up 9 percent. Strong results came from pants and intimates. Express, its red-hot unit saw comps up 1 percent, with sales softer than expected while Lane Bryant and the Limited divisions comps’ were both up 5 percent and Structure was up 2 percent.
Intimate Brands reported its comps headed down 5 percent, hurt mostly because of its Victoria’s Secret stores and beauty division, which had comp declines of 6 percent. Abercrombie & Fitch’s comps increased 6 percent, reflecting encouraging spring results and very strong selling of winter carryover merchandise. Women’s comps were stronger than men’s, driven by sweaters, knits, including tank, tube and halter tops, polo shirts, and denim and capri bottoms. In addition, its gymwear and underwear continued to outperform. In men’s, sweaters, outerwear, gymwear and polo shirts performed.
Hot Topic’s same-store sales improved 10 percent with good sales in both men’s and women’s throughout the month. The company said it continues to have unique merchandise that is different from other retailers’ goods in the mall. Betsy McLaughlin, chief executive officer, said, “Our sales momentum continued into the new fiscal year. Sales were above plan each week, with the days leading up to Valentines Day producing exceptionally strong results. As we move into March, our inventory is well positioned to support the upcoming spring-break season.”
Talbot’s saw its comparable sales increased 9.3 percent. Arnold B. Zetcher, chairman, president and ceo, said in a statement that, while pleased with February’s performance, particularly given the 20.4 percent comparable-sales increase reported last year, he said, “We feel the combined March-April period will be a better indication of our spring selling.”
Retailers with less impressive comps felt the same way.
Department Stores
May Department Stores’ same-store sales fell 1.1 percent. Overall sales increased 3.1 percent to $937 million. The company also reported it signed an agreement to purchase 13 former Wards stores. The deal is expected to close about April 1. May plans to reopen most of the locations during 2002.
The proposed Wards purchases are in addition to 21 new doors expected to open under the company’s various nameplates this year. The chain currently operates 427 department stores and 124 David Bridal locations.
Federated Department Stores saw comps decrease 1.6 percent compared to a more robust 5.3 percent gain a year ago. Excluding the ailing Fingerhut division, total sales for the firm’s department store division in February fell 0.2 percent to $1.08 billion.
Sears, Roebuck & Co.’s domestic store comps fell 2 percent for the month. Alan Lacy, chairman and chief executive, said, “In the full-line stores, increases in fine jewelry, footwear, and home electronics were offset by decreases across other categories.”
In the full-line stores, hardlines and softlines were each down low single digits. The women’s portion of softline comps was down low single digits, while the men’s portion saw comps fall in the high single digits.
Lacy described February as a “challenging month” which fell short of expectations while “the impact of the slowing economy was felt across both our hardlines and softlines businesses.”
J.C. Penney Co. saw comparable-store sales in its department stores drop 2.1 percent of the period, while Dillard’s comps fell 2 percent.
Saks Inc.’s overall comps dropped 1.3 percent for the month. The Department Store Group’s 3.6 percent decrease was partially offset by a 2 percent rise in the Saks Fifth Avenue Enterprises division.
Merchandise that moved in the DSG division included junior’s apparel, women’s private brand, dresses-suits, accessories and shoes. Weaker categories were men’s sportswear and better women’s apparel.
In the SFAE division, the firm saw strength in the women’s apparel, women’s plus sizes and women’s private brand sportswear areas. Weaker for the period were the women’s designer sportswear, dresses, coats-outerwear and men’s sportswear categories.
At the Neiman Marcus Group same-store sales remained flat with a year ago. Comps for the specialty segment, which includes Neiman Marcus Stores and Bergdorf Goodman, inched up 0.4 percent in February. Growth was strongest on the East and West Coasts with particular strength in precious jewelry, men’s shoes and women’s designer apparel.
Nordstrom posted a 1.4 percent comp decline for February. Regional hot spots included the Southwest and East Coast, despite the frigid weather, which collectively ran counter to the corporate trend with comp-store increases. Strong categories were women’s, junior women’s, women’s designer, women’s active wear and cosmetics.
Kohl’s Corp. and Gottschalks led the department store category with same-store jumps of 7.3 percent and 7.5 percent, respectively.
Mass Merchants
Wal-Mart Stores reported a 4.3 percent increase in comparable-store sales for February. The Wal-Mart division saw comps rise 4 percent, below the Sam’s Club division, which posted comps of 5.6 percent. Sales at the Wal-Mart division grew 11.2 percent, to $1.99 billion. Basic apparel and sleepwear both trended higher than divisional averages during the month, while boys’ and girls’ apparel posted weaker-than-expected results.
Regionally, sales in the West and Mid-Atlantic states were strongest for the broad-based retailer, while adverse winter weather in the Northeast factored into that region’s weaker sales results.
Target Corp. overall saw same-store sales rise 1.5 percent in February. A 2.9 percent increase for the Target division was partially offset by decreases at Mervyn’s and Marshall Field’s of 3.6 percent and 4.6 percent, respectively. The firm was looking for low to mid single-digit increases for all three divisions.
For the company on a whole, the women’s and junior’s categories were strong, while men’s apparel topped the list of slow-moving categories for the month.
Regionally, Target had a different experience than its closest competitor Wal-Mart and saw strength in the Northeast and Middle Atlantic regions and weakness in the central part of the country.
Kmart Corp. reported a comparable-store sales increase of 3.3 percent. In a statement, Chuck Conaway, chairman and chief executive, warned those slightly higher on the retail food chain: “February marks our fourth consecutive month of strong same-store sales as we are closing the gap with our competition.”
Ames Department Stores’ comps fell 5.3 percent in February although Joseph Ettore, chairman and chief executive, said inventory management allowed for fewer markdowns than a year ago. “As a result, we had fewer clearance items to drive overall sales and traffic,” he said, adding that sales were within the company’s expectations, while apparel categories did better than planned.