Byline: Thomas J. Ryan / With contributions from Jennifer Weitzman

NEW YORK — Bleak June sales results cast a pall over the fall season that even a fresh infusion of fashion may not be able to lift.
A confluence of factors — higher gas prices and interest rates, a volatile stock market, cooler temperatures in the Midwest and Northeast, and a lack of “must have” fashion items — commingled to cause most retailers to record what one analyst, Bill Armstrong at Pennsylvania Merchant Group, called “the worst month for retailers since September 1997.”
The disappointment was widespread with same-store sales declines coming from Dillard Department Stores Inc., The May Department Stores Co., Eddie Bauer, Charming Shoppes, Abercrombie & Fitch and Kmart. A few — The Gap, Ross Stores, Goody’s Family Clothing and American Eagle — guided down estimates for the second quarter as markdowns are accelerated to clear summer inventories. Given the poor sales trends and outlook for the economy, analysts suspect that chains will be very conservative in placing orders for fall.
As always, some stood out with double-digit same-store gains, including specialty chains Talbots, Neiman Marcus, Express, Victoria’s Secret, Chico’s F.A.S, Brauns and Hot Topic. But most came up short, and analysts said that it wasn’t just the unseasonably cool weather but a lack of compelling trends.
“It was just boring,” said Shari Schwartzman Eberts at J.P. Morgan. “The trends were too similar to last year and there was not a lot of newness to spring fashions this year.”
Wall Street said it was hard to decipher how much of the sluggishness was due to the slowing economy and the Federal Reserve’s six interest rate hikes, and how much due to the weather and fashion misses.
“The continued impact of higher interest rates is certainly having an impact on demand, as well as the higher gas prices, which everyone knows about,” said Wayne Hood at Prudential Securities. “I think exactly what the Federal Reserve wanted is beginning to happen.”
The big mystery is the extent to which the economy will slow in coming months. But apparel itself remains sluggish as consumers gobbled up consumer electronics — such as palm pilots, digital cameras, televisions and DVDs — and also preferred home decor items.
Pennsylvania Merchant Group’s Armstrong said new fashion trends in denim, stretch and leather could revive apparel for fall. “I think it’s too early now to say how fall is going to be because most of the stores don’t have fall merchandise in yet,” he said. “But there is some optimism going into fall.”
Dorothy Lackner at CIBC Oppenheimer & Co. concurred. “I don’t see any reason why the fall season shouldn’t be a good one,” she said, adding that among the major burdens to the spring season’s comps were the tough comparisons against a stellar first half of 1999. Comparisons will become easier in the second half of this year, she noted.
But she said that “well-positioned specialty chains” such as Talbots and Ann Taylor are in a position to do better even if the economy weakens because they are better at meeting the needs of customers than are department stores.
Dillon Read’s Rosemary Sisson said stores in general will likely have to jack up marketing efforts and offer more services, such as events to teach consumers how to dress casually for work, to stimulate demand.
“Stores have got to figure out a way to get more excitement out of shopping, and in an economy that is looking like it is beginning to slow, even gradually, I think you have to be more on your game in order to get people to spend money. If you’re at all a mediocre player, you just fall way behind.”
Walter Loeb, at Loeb Associates, said he is “still optimistic” for fall, noting that consumer confidence in employment remains strong and the likelihood exists that gas prices will be reduced in time for fall.
“I feel that the momentum of sales increased in the second half of the month over the first half and I see better sales in July,” said Loeb. “Of course, some of this is stimulated by heavy markdowns, but inventories should be clean and ready for fall selling by the end of July. The fall season will be very promotional, but I expect a better momentum than spring.”
Concerns about credit made Federated Department Stores perhaps the biggest disappointment among the broadline stores.
“We are concerned about the rise in credit delinquencies at Fingerhut in June, and we are monitoring the situation closely,” said James M. Zimmerman, Federated’s chairman and chief executive, in a statement. He said June sales were disappointing at both its department stores and catalog divisions.
“We did take the necessary markdowns in the department stores and ended the month with our store inventories in good shape. We are hopeful that July and the rest of the year will see some improvement in sales performance,” Zimmerman said. Federated’s same-store sales nudged up 0.5 percent. Shares of Federated fell 5 3/16, about 15 percent, to 29 5/8 Thursday.
Kohl’s was a standout with its 5 percent comp gain and one of the few department store operators to say apparel drove sales.
Sears scored a respectable 2.3 percent same-store gain, but strength in appliances and consumer electronics offset declines in apparel. Sears said fine jewelry, cosmetics and fragrances “showed solid increases.”
Luxury also appears to be a sweet spot as illustrated by Neiman Marcus Group’s 17.3 percent comp gain. A spokesman said NMG is continuing to benefit from a shift in recent months to focus less on bridge and more on narrowly distributed brands in fine apparel. Fine apparel, women’s accessories and designer jewelry all achieved comp gains of over 15 percent in June. All men’s categories were up over 20 percent, partly driven by a shift in its men’s sale from May to June, but men’s shoes and clothing vaulted more than 75 percent and men’s sportswear was up more than 40 percent.
Saks Inc. said its Saks Fifth Avenue division achieved a mid-single-digit gain, but a mid-single-digit decline at its traditional department store division led to an overall 1.6 percent same-store decline. Bestsellers at the Saks Fifth Avenue chain were its “gold range” apparel lines such as Max Mara, J.P. Todds and Piazza Sempione. Accessories, cosmetics, shoes, fine jewelry and gifts sold well throughout the company. Softer sales at Saks traditional department stores were in women’s, men’s, juniors and children’s apparel.
Nordstrom Inc.’s June comp-store sales gain of 9.1 percent was boosted by the shift of its women’s half-yearly sales and short of Wall Street’s expectations of a 14 to 16 percent increase. Nordstrom said quarter-to-date comps were down 1 percent with declines in juniors, women’s and kids.
J.C. Penney Co., which had a 2.1 percent decline at its department stores, said strong sales were seen in women’s apparel and shoes, but overall sales were more promotional than expected. At Bon-Ton, weak sales in men’s, misses and juniors offset gains in accessories, women’s sportswear, special sizes, cosmetics, home and intimate apparel.
Gottschalks, which boasted a 7.8 percent comp gain, cited “solid increases in men’s collections and a resurgence of fashion dress shirts and ties.” “Excellent” gains were also cited in dresses, moderate sportswear, Liz Claiborne, shoes and large sizes.
Wal-Mart paced discounters with a 4.7 percent gain in same-store sales, and the firm listed its best-selling items as electronics, infants and toddlers, swimwear, men’s and women’s apparel, floral and health and beauty aids. Target Corp said sales in June were below plan while same-store declines were seen at Kmart, Bradlees and Ames.
Gap, which had a 2 percent comp decline, said weak sales would cause second-quarter earnings to come in 3 cents below Wall Street’s current estimates of 26 cents a share. Gross margins came in below expectations as a result of increased markdowns across all divisions. Comps dropped in the negative high-single digits at Old Navy, while rising in the low-single digits at Gap domestic and Banana Republic. Gap International was flat.
At Old Navy, strength in denim, children’s and its flag T-shirts was offset by weakness in men’s bottoms and women’s dresses and sweaters. At domestic Gap, women’s wear experienced strength in bottoms and wovens and weakness in knits and sweaters. Men’s bottoms and women’s knits and sweaters performed well at Banana Republic.
Among specialty chains for teenagers, there were same-store drops at Abercrombie & Fitch, The Buckle, Deb Shops and American Eagle Outfitters. Eddie Bauer, which had a 14 percent comp tumble, blamed weakness in men’s bottoms and casual tops and an overall lack of color. A Bauer spokeswoman said the company plans to add trendier colors such as lavender for the second half. Bebe, with a 16.5 percent comp decline, said they didn’t have enough denim, colored bottoms and looks for the casual workplace.
Guess Inc. said its same-store sales at its full-price stores grew 6.9 percent in June.
Several women’s chains excelled. Talbots said both regular-price selling and an “exceptionally strong start” to its semiannual sales sparked its 16.5 percent comp gain.
“Sales trends continue to be strong across all concepts and in all channels,” said Arnold B. Zetcher, chairman, president and chief executive.
Ann Taylor said its 4.1 percent comp gain was driven by full-price selling. “Feminine styling and color continued to drive the business and our relaxed business assortment and sweaters performed particularly well,” said an Ann Taylor spokeswoman.
Victoria Secret Store’s 11 percent comp gain was driven by a good response to its semiannual sales. Express’ 12 percent comp gain was fueled by good results in underwear and tops.
Comps rose 8 percent at the The Limited Stores due to strength in its virtual stretch program. Comps rose 4 percent at Bath & Body Works and gained 1 percent at Lerner Stores Corp., but dropped 1 percent at Lane Bryant and 6 percent at Structure.

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