SEARS COMPS RISE 3.8%, OTHERS FEEL EASTER CHILL

Byline: Thomas J. Ryan

NEW YORK — Sears, Roebuck & Co. reported March same-store sales rose 3.8 percent and said first-quarter earnings would blow past Wall Street estimates.
Hard goods led Sears as the shift in Easter to April 23 from April 4 last year led to lower apparel sales in March. Several other retailers said the Easter shift crimped sales, including Gap, which reported March same-store sales tumbled 11 percent. Besides the Easter shift, Gap said the decline stemmed from reduced markdowns at the domestic Gap chain that helped the company show its highest monthly merchandise margins in at least 10 years.
Intimate Brands said overall same-store sales limped ahead 1 percent as a 5 percent increase at Victoria’s Secret offset a 5 percent drop at Bath & Body Works.
American Eagle Outfitters reported a rare 0.3 percent same-store decline, again blaming the late Easter. “Over the past several years, we’ve built a very successful dress business, which is centered around the Easter holiday,” said George Kolber, vice chairman and chief operating officer.
Shrugging off the Easter shift, Chico’s by F.A.S.’s same-store sales shot up 39.7 percent, thanks to a strong response to a national print campaign, and music-related apparel retailer Hot Topic boasted of a 19.6 percent comp gain.
Sears said first-quarter earnings should range between 62 to 67 cents a share, well above Wall Street’s consensus estimate of 46 cents and the 38 cents it reported a year ago. Shares of Sears rose 7 to to 37 1/2 Wednesday on the New York Stock Exchange.
Sears chairman and chief executive Arthur Martinez said the better-than-expected profits stemmed from strong retail performances at its U.S. stores and Sears Canada, continuing strength in its credit card area, and a share repurchase program.
“Our retail store sales and margins continue to show improvements as customers recognize the Sears strong value proposition,” said Martinez. “We’re also seeing strong performances in our credit business as our portfolio continues to improve.”
Domestically, March sales were driven by “continued momentum” in home appliances and good sales performances in home improvement, including lawn and garden. “Apparel sales were essentially on plan, but less than the same period last year due to the shift in the Easter holiday to late April,” Martinez said.
Commenting on Sears’ stock surge Wednesday, Isaac Lagnado, president of Tactical Retail, said, “This is a reaction to short-term earnings without much of a connection to strategic positioning. Wall Street is looking at the numbers and not at what is behind the numbers. Sears’ brand positioning, apparel strategy and advertising strategy are still unresolved issues.” Lagnado, however, did compliment Sears for a “sharp turnaround” in the chain’s credit card operation and its decent same-store sales gain.
Gap said its 11 percent comp decline was against a 21 percent gain last year. By division, comps at Gap’s domestic chain were down in the mid-teens, Gap International was down in the mid-single digits and Old Navy was off in the low teens, Heidi Kunz, executive vice president and chief financial officer, said on a conference call. Since all three do a large portion of children’s wear, the Easter shift “significantly impacted” sales, she said.
The domestic Gap chain had “meaningfully fewer” markdowns in March as a result of overall efforts initiated this spring to increase regular price sales, Kunz said. She said resultant higher margins should offset soft sales to keep Gap in line with Wall Street estimates for the quarter, which are at 28 cents a share against 22 cents a year ago. Women’s paced Gap’s domestic chain, with the new West Side Story marketing campaign boosting sales of bottoms.
Old Navy was “impacted dramatically” by the Easter shift as well as tough comparisons against the successful drawstring pants campaign in spring 1999, far larger than this spring’s current messenger pants campaign.
Banana Republic’s comps were up in the low-single digits, with premium chinos driving men’s and infusions of color lifting women’s. Kunz said new marketing campaigns and Easter’s arrival should lead to a “big month” in April.
At Intimate Brands, Victoria’s Secret Stores was star, with the 5 percent same-store rise compared with a 22 percent hike a year ago. Results were driven by the new lingerie line Body Bare, the continuing success of Body by Victoria and good sleepwear sales, IBI said on a conference call. Overall, merchandising margins were up. Beauty did better than expected with strength in its Heavenly fragrance, new scent introductions in the garden and toiletry area, and a “good start” to Pure Reflections, a new lipstick. The chain said the late Easter held back March’s performance, and a mid-teen comp increase is projected for April.
Led by intimate apparel, Victoria’s Secret catalog’s sales advanced 3.7 percent while merchandising margins were higher due to the elimination of poor performing catalogs. The catalog expects a similar gain in April.
At Bath & Body Works, the 5 percent comp decline stemmed from coupons that inflated February sales as well as from the Easter shift. IBI noted on the call that in the first eight weeks of the quarter same-store sales were up 8 percent but, due to the lack of pre-Easter business, gained only 1 percent when adding the ninth week. BBW’s comps are projected to rise in the low teens in April.
Chico’s 39.7 percent surge follows gains of 23.3 percent in March 1999 and 31.7 percent in March 1998.
“During March, our comparable stores sold almost 40 percent more spring product than last March, while still maintaining gross margins comparable to last year,” said Marvin Gralnick, Chico’s chief executive.
Charles J. Kleman, chief financial officer, said the comp gain stems from the continuation of a national print campaign started in 1999’s fourth quarter, with the best response coming from Martha Stewart Living.
Also driving traffic is a strong response to its larger brochure mailed out in mid-March and the growth of its Passport Club program to over 100,000 members this February from 25,000 in February 1999. A member receives a 5 percent discount on purchases, but must spend at least $500 to join. Between 45 and 49 percent of purchases in the stores are made through the card versus 10 percent a year ago.
Kleman noted that the Easter shift did not affect Chico’s as much because most stores are located near resort areas.