NEW YORK — Value and prestige won over consumers’ wallets in August, leaving many stores in the middle with a power shortage that lasted well beyond the midmonth blackout.
Skittish consumers headed to value-priced chains like Wal-Mart, Target, Sears, J.C. Penney, TJX and Ross in August, leaving many teen retailers and regional department stores with disappointing comparable-store sales results.
“Broadline department stores and mass merchants performed stronger at back-to-school sales than specialty stores,” Bear Stearns analyst Dana Telsey said. “Specialty stores aren’t getting the traffic and sales were lagging a bit.”
In fact, Sears produced its first positive comparable-store sales result in two years, since its 0.2 percent advance in August 2001, and Saks Inc. saw both divisions comp positively for the first time since April 2002.
Moreover, along with Sears, Wal-Mart and Penney’s benefited from check-cashing services that helped them capitalize on the child tax credit.
Analysts said the Aug. 14 blackout was estimated to cost up to 2 comp points at department stores and 1 point at specialty stores.
Describing August as a tough month, Dawn Stoner, a retailing analyst with Pacific Growth Equities, said specialty apparel sales were weaker than anticipated while stores emphasizing value pricing advanced.
“It is revealing that when you look at the strongest months of the year, the clearance months have been the best,” she said.
Back-to-school spending was fairly healthy, benefiting from the tax rebates, she noted, but the discount channel picked up a disproportionate share of sales. Particularly in the teen sector, specialty retailers that didn’t look different or tell a unique story struggled, while those that did, such as Pacific Sunwear of California and Hot Topic, reported double-digit comp gains.
Stoner felt that, with their strong value propositions, some “midtier department stores and discounters have improved their apparel offerings, probably taking some market share from specialty stores.” Target and Penney’s were cited for creative merchandising efforts of this sort.
There were fewer pleasant surprises in August than in recent months, and some stores that have been more resilient this year, such as Gap and Aeropostale, slowed down a bit. Overall, of 50 retail firms tracked by WWD, 26 had increases, 23 decreases and one, Goody’s Family Clothing, finished up so marginally, 0.03 percent, that it rated as flat.
Overall, the Goldman Sachs comparable-store sales index in August rose 5 percent, better than the 4.2 percent increase forecast and the 0.8 percent rise last year. Discounters’ sales increased 7.3 percent, above the 5.4 percent expected and the 3.6 percent reported last year. Department stores fared better this August, increasing 1.3 percent, versus a 5 percent decrease a year ago. Specialty stores and off-price retailers weighed in with a 0.8 percent increase, better than their 0.6 percent fall last year.
Saying there is no proof that apparel spending is improving, Wachovia Securities retail analyst Joseph Teklits wrote in a research note he is disappointed with overall August results for apparel specialty retailers. “Our index of teen and young adult retailers posted its weakest comp result (down 2.9 percent) since February, with seven double-digit declines (more than the past four years combined) in August,” he observed.
Fearing the party may be winding down for retail stocks which could, after a recent run-up, underperform over the next few months, Teklits downgraded Gap, PacSun, Ann Taylor and PacSun to “market perform” from “outperform.”
On the other hand, Steven Skinner, a partner in the retail industry group at Accenture, said there was a lot to like about the monthly reports, noting that department stores and others that have been struggling were doing so by less.
“I was quite heartened by the reports, which bodes well for the remainder of the year,” Skinner said. “I think the trend is consumers are coming back.”
Gap Inc. said comps increased 4 percent as Banana Republic’s rose 8 percent, Old Navy’s 6 percent and Gap’s 1 percent. Total company merchandise margins were in line with those of last August.
Gap said back-to-school marketing helped drive strong sales of its Gap corduroys and Old Navy cargoes. Old Navy continued its positive traffic trends and BR had strong results as customers responded well to wear-now fall transitional merchandise, the company said. However, sales were slightly below early expectations as strong consumer response to advertised products was offset by weaker-than-expected demand for fleece activewear and long-sleeve tops at Old Navy and long-sleeved tops and basic denim at Gap. Gap also said Nicholas A. Severino is joining the company as chief financial officer for Gap brand.
Limited Brands said overall comps decreased 2 percent and apparel comps fell 11 percent. Victoria’s Secret comps rose 8 percent, above expectations, driven by strong bra sales, and Bath & Body Works’ comps were up 2 percent. But Express and Limited stores comped below expectations, down 10 percent and 13 percent, respectively. Express said women’s sales were down in all categories except knit tops and casual bottoms, with the most significant declines in denim and lingerie.
Back-to-school sales were a study in contrasts for teen retailers, with double-digit increases balanced against decreases of similar magnitude.
Pacific Sunwear of California posted a 15.6 percent increase, with PacSun comps up 15.2 percent and Demo up 20.3 percent. The third-quarter earnings outlook was raised to 41 cents a share, including expenses of 3 cents per share for restricted stock, from 39 cents. The new estimate assumes a combined September and October comp increase of between 6 and 8 percent. Fourth-quarter expectations were lifted to 54 cents from 53 cents, based on comp increases of between 5 and 6 percent.
Hot Topic said comps increased 11.8 percent, driven by positive comps in all weeks, geographic areas and merchandise categories. HT also said it was increasing third-quarter earnings guidance to 26 cents, 1 cent higher than previously projected.
However, at American Eagle Outfitters, comps decreased 10.4 percent, with AE stores tumbling 10.3 percent and Bluenotes/Thriftys declining 11.7 percent. Laura Weil, chief financial officer, said on a prerecorded call, “B-t-s business was below plan due to a higher focus on fashion in place of an active-inspired b-t-s line, which we are known for.”
Abercrombie & Fitch said comps decreased 11 percent, although Hollister comps rose in the double-digit range.
Women’s specialty stores were also mixed. Ann Taylor said comps rose 8.2 percent, better than expected, with AT stores up 6.6 and the Loft division up 7.1 percent. Chico’s FAS saw comps rise 19.4 percent, but Talbots said comps declined 8.7 percent, below expectations.
Price and product differentiation were the keys to success or failure in the department store channel last month. National chains and upscale retailers tended to outperform their regional and more moderately-priced counterparts.
“The high end outperformed the traditional department stores,” wrote Smith Barney analyst Deborah Weinswig in a research note. “Similarly, we witnessed strength from value-oriented department stores. We believe that the consumer is willing to pay up for differentiated product, but is very price-focused on basics and consumables.”
Bearing that out, J.C. Penney Co.’s department stores comped up a healthy 6.5 percent on the strength of back-to-school shopping and solid results from women’s career apparel and fine jewelry. Penney said on a prerecorded call that the overall effect of the Aug. 14 blackout on comps was minimal — less than 1 percent.
In the same vein, Sears, Roebuck & Co.’s stores registered a 3.9 percent gain in same-store sales, but it needed robust home appliance sales to make up for weakness in apparel and accessories, which were flat overall. Low-single digit declines in women’s apparel were offset by positive mid-single digit gains in accessories, Sears said.
Last-minute back-to-school shopping allowed Kohl’s Corp. to post a 3.2 percent increase in same-store sales. The company said shopping patterns indicated a “continuation of the buy-now, wear-now mentality” Kohl’s has been seeing from its customers. All regions comped flat to positive, Kohl’s said, with the South Central and Southeast regions performing best, posting growth of between 9 and 10 percent. The Midwest, which accounts for about 40 percent of Kohl’s store base, was the firm’s most challenging area, as overall comps were flat.
At the high end, cosmetics, jewelry, women’s activewear and designer apparel, among other categories, pushed Nordstrom Inc. to a 3.2 percent same-store sales gain. Neiman Marcus Group Inc. did even better with a 7.6 percent comp increase, led by contemporary sportswear and dresses, designer handbags and beauty. And Saks Inc. managed fractional same-store sales gains at both its divisions, with the department store group comping up 0.7 percent while Saks Fifth Avenue grew 0.9 percent.
On the other side of the ledger, Federated Department Stores Inc. continued to pare its comp-store decline, as August returned a 0.8 percent decrease, an improvement over last year’s 5.8 percent slide. Were it not for the effect of the blackout, the operator of nameplates such as Macy’s and Bloomingdale’s, among others, said comps would have been flat.
May Co. also saw comps improve over a year ago, this time dipping 3.2 percent. The parent of Lord & Taylor, Filene’s and Kaufmann’s, among others, said excluding the 34 stores, including 32 L&T’s, slated to close, comps would have fallen a slightly steeper 3.6 percent. Still, that’s much improved over the year-ago drop of 8.6 percent.
Regional players fared the worst in August, as Dillard’s Inc.’s same-store sales fell 4 percent, Bon-Ton Stores Inc. dipped 2.4 percent, Elder-Beerman Stores Corp. plunged 9.5 percent, and Stage Stores Inc. declined 7.3 percent. Gottschalk’s Inc., however, managed a comp increase of 1 percent.
The weather and clearance activity smiled upon the majority of mass retailers in August.
Wal-Mart Stores Inc. blew away its comp forecast, boasting a 6.9 percent company-wide increase and a 6.6 percent gain at its Wal-Mart division. Sam’s Club chipped in a hefty 8.2 percent rise in comps to allow the world’s largest company to shatter its own 3 to 5 percent growth forecast. Wal-Mart said on a prerecorded call that the Northeast and Midwest were the strongest regions, and that by category, intimates and men’s apparel sold above average. Wal-Mart added that unit sales outpaced dollar sales and that increased traffic accounted for almost two-thirds of the same-store sales increase.
Target Corp. likewise had a strong August, as an 8.3 percent comp increase at Target stores, well above plan, more than offset an 8.9 percent drop at Mervyn’s and an 7.3 percent decline at Marshall Field’s. Overall, total company same-store sales comped up 5.7 percent, which beat the firm’s plan for a 4.5 percent August increase. By merchandise category, hardlines did better than softlines, as men’s apparel, intimates, hosiery and jewelry turned in the weakest comps.
For September, the company said Target stores should comp up between 5 and 6 percent, but Marshall Field’s and Mervyn’s are projected to drag down overall results to between 3.5 and 4.5 percent.
Off-pricer TJX Cos. said the blackout forced the firm to close 300 stores for one to three days, but the company still managed a 1 percent same-store sales gain. Off-price competitor Ross Stores did slightly better with a 2 percent increase. The company said accessories, juniors and women’s large sizes were among the best performing categories.
Value City Department Stores registered a 4.2 percent rise in same-store sales, while ShopKo Stores Inc. ticked up 1.4 percent. Factory 2-U Stores Inc., however, saw comps fall 4.8 percent.