SAME-STORE SALES CONTINUE THEIR PLUNGE, DAMPENING FALL HOPES
Byline: Jennifer Weitzman / With contributions from Evan Clark / David Lipke
NEW YORK — See you in September.
That’s the tune retailers find themselves singing, albeit mournfully, since June’s heavily promotional environment wasn’t enough to ring in the sales, and prospects for the second quarter faded from weak to poor. Consumers, spooked by the softening economy and eroding job prospects, reeled in spending, driving down same-store sales for the month.
Still, retail executives and industry watchdogs are hopeful that the tax refund package, lower interest rates and a stabilized equity market will be enough to draw them back for the fall selling season. Improved merchandising, it is hoped, will also deliver better results in the third quarter.
The disappointing May sales and inventory buildup carried into June, and in some cases, retailers fared even worse, as more companies reported results that were below plan, and discounting, both early and deep, cut into gross margins. Same-store declines prevailed throughout the industry, causing a good number of retailers to issue warnings about quarterly and yearly earning results. Among those doing so on Thursday were Ann Taylor, Gadzooks, Goody’s, Claire’s, Wet Seal, Wilson’s, Ross and TJX. Previously, Federated, Stein Mart, Neiman Marcus, Guess, Pacific Sunwear, Factor 2-U and Tiffany’s issued warnings.
Retailers bucking the generally downward trend included Wal-Mart, J.C. Penney Co., Nordstrom, American Eagle Outfitters, Talbots, Chico’s FAS and Christopher & Banks.
Discounters continue to show strength, benefitting from Wal-Mart’s 6.8 percent comp, selling more consumables and at lower prices. Specialty-store results were mixed, though mostly on the downside, as those that dominated earlier continued to do so. Department stores, losing market share with disappointing merchandise, continued to wilt. According to the Goldman Sachs’s June comparable-store sales index, same-store sales grew 2 percent in June, better than expected, and compared to 2.6 percent last year. Discounters’ comps rose 5.1 percent and specialty stores were up 0.9 percent, but department stores slid 2.7 percent.
While June, which generates about 40 percent of second-quarter earnings, is better known for full-price selling, retailers, recognizing early on that the quarter was at risk, took their markdown medicine sooner than planned. And while many expect more of the same in July, retailers said inventories should be cleared out for fall.
Calling the month “ugly,” Todd Slater with Lazard Freres said: “Clearly, apparel is suffering from consumer malaise and oversaturation of stores.” In addition, he said, consumers are diverting their dollars into big-ticket areas like travel and home.
Slater added that he expected a small bounce this fall, but overall, the industry should not see a recovery until the first quarter of next year, when there is opportunity for improving fundamentals at companies such as Gap and IBI.
However, even with a a more relaxed customer and a new fashion cycle this fall, not all analysts were sold on a recovery and many are calling for a “tough” second half. “I don’t think the consumer will bounce right back,” Christine Augustine with ABN AMRO said, pointing to government reports showing that new claims for state unemployment insurance jumped last week to the highest level in nine years and the unemployment rate increased to 4.5 percent from 4 percent.
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SPECIALTY STORES
Consistent with expectations, Gap experienced a comp drop of 7 percent on a 12 percent increase in sales, to $1.3 billion. Banana Republic was the only division to turn in a positive comp performance, a low-single-digit bounce, while Gap and Old Navy were off in the high-single digits.
“June was a transitional month as all brands focused on liquidation of summer and basic goods to make room for fall delivery,” Heidi Kunz, chief financial officer, said on a conference call.
Kunz said that with greater focus on comps, merchandise and expenses, the company can look to meet its earnings growth target of at least 15 percent.
The Limited reported apparel comps fell 5 percent, below plan, while overall company comps fell 3 percent. All apparel brands reported negative comps, driven by negative comparisons in transactions per store at every business. Apparel inventory ended the month up 2 percent per square foot at cost versus a 5 percent increase in May.
At Intimate Brands, operator of Victoria’s Secret and Bath & Body Works, comps fell 2 percent. VS comps were flat, which is better than expected, while BBW comps fell 6 percent. VS direct saw sales fall 24 percent, to $98.2 million, due to a shift in mailing from the second quarter and softness in clothing.
Youth retailer Abercrombie & Fitch weathered a comp drop of 4 percent while sales rose 17 percent, to $99.3 million. It remains comfortable with its previous guidance of second-quarter earnings of 22 cents. The women’s division comped in the positive double-digits and bestsellers were halter and tanks tops, muscle T-shirts, polos, capris, denim and gymwear.
DEPARTMENT STORES
The May Department Stores Co.’s comparable-store sales dropped 7.7 percent during the month. The parent of Lord & Taylor and Hecht’s said the drop was partially due to the adverse effect of shifting a major sales promotion, which took place in June last year, into May. Taken together, comps for the months of May and June dropped a milder 3.7 percent.
Federated Department Stores, which warned last week that it would miss second-quarter profit expectations, posted a 6.4 percent decrease in same-store sales. Overall sales for the parent of Macy’s and Bloomingdale’s dropped 10.4 percent, to $1.41 billion, reflecting the downsizing of its Fingerhut division and the closure of its Stern’s division.
Comps at Sears, Roebuck & Co. slipped 0.5 percent. Increases in its specialty stores were offset by poorer performances in the full-line stores, where “strong sales increases in appliances were offset by decreases across other categories,” according to Alan Lacy, chairman and chief executive officer.
Kohl’s Corp. pressed on with a 1.7 percent comp increase. Larry Montgomery, ceo, said that due to a calendar shift, June and July taken together would offer a more accurate comparison and approximately a 4 to 6 percent increase.
Same-store sales for Saks Inc. dropped 5.2 percent. Comps for the Saks Fifth Avenue Enterprises division matched the corporate average, while the Saks Department Store Group dropped a slightly higher 5.3 percent.
Nordstrom’s comps inched up 1.4 percent. Adjusting for calendar changes, sales in full-line stores increased in the East Coast and Northwest regions, while women’s, junior’s, women’s activewear, intimate apparel and cosmetics were among the stronger merchandise categories.
Comps for Neiman Marcus Group dropped 5.4 percent, partially due to this year’s shift of its annual men’s sale into May from June. Same-store revenues from its specialty retail segment, which included Neiman Marcus and Bergdorf Goodman, dropped 6.9 percent against a year ago.
J.C. Penney Co.’s comparable-store sales rose 3.8 percent for the month from strength in women’s and men’s apparel and a strong Father’s Day.
MASS MERCHANTS
Wal-Mart Stores’ comps rose 6.9 percent — 6.8 percent at the Wal-Mart division and 7.1 percent up at its discount clubs. Comps for health and beauty aids at Wal-Mart were above the divisional average. “The period started slower than expected, but sales gradually accelerated as the weeks passed and hot weather moved across the country,” said a Wal-Mart spokesman on a recorded call.
Same-store sales at Target Corp.’s flagship discount division rose 3.2 percent. Jewelry, accessories and men’s apparel were counted among the division’s poorest performers for June. Reflecting the division’s newer stores, the Mid-Atlantic and Northeast regions showed the best results.
K mart’s Corp.’s comps rose 1.1 percent for the month. Chuck Conaway, chairman and chief executive officer, noted that the discounter during the five weeks reset 726 stores from its base of 2,100 stores and reduced its advertising by more than 30 percent from a year ago.
Ames Department Stores saw its comps drop 4.8 percent. Joseph Ettore, chairman and ceo, noted that while margins are above year-ago levels, “the slowing economy coupled with waning consumer confidence impacted our customers’ spending habits during the month.”
Off-pricers were hit particularly hard and several reported that they would take a more conservative stance toward the rest of the year. Ross Stores posted flat comps for June with juniors ranking as the best-selling merchandise category. For fiscal 2001, though, Ross expects its earnings per share to come in the $1.65 to $1.75 range. Wall Street was looking for profits of $1.87 per share for the period.
Comps rose 2 percent at TJX Cos., slightly below its 3 percent plan. Since June was unable to offset weak sales in May, the firm said it would post earnings of 40 cents a share in the second quarter, a penny above year-ago results. For the year, the firm expects to earn $2 a share, compared to $1.86 earned a year ago.