Retailers remain laggards when it comes to offering signs the
economy is improving, a troubling situation since consumers account
for about two-thirds of overall spending on goods in the U.S.
Same-store-sales in July fell by their second highest amount of
the year as consumers clamped their wallets amid continued concerns
about their jobs and as federal incentives enticed many to spend on
new autos and homes. The reports came the same day that government
data showed jobless claims fell last week and a day after word that
demand for U.S. factory goods unexpectedly rose in June.
Same-store sales fell 5.1%, when a 5% drop was expected, Thomson
Reuters said. The decline was the second biggest drop of 2009
behind the very beginning of the year, when January's comparable
store sales declined 5.7%.
Retailers said they felt impacts from tax-free holiday shifts to
August from July, which crimped year-over-year spending. They also
had less inventory, which meant less clearance selling. Among
categories, apparel, home and garden and electronics were cited
most as seeing soft demand.
There is also the government's "cash for clunkers" program to be
considered.
Richard Feinberg, a professor of retail management with the
Purdue Retail Institute at Purdue University, estimates that if the
government winds up spending $3 billion on the program, the money
consumers spend on car loans would reduce the money available for
retail sales by $300 million a month, or $1.5 billion during the
five months of back-to-school and holiday sales.
The showing is retailers 11th straight monthly same-store sales
decline. It indicates the industry isn't making much progress
despite continuing to engage in deep discounting and is raising
concerns about where they go from here.
But there were some upside surprises, including Gap Inc. (GPS),
Zumiez Inc. (ZUMZ), TJX Inc. (TJX). Limited Brands Inc. (INC)
widely beat analysts' expectations, posting a 7% drop in
same-store-sales when analysts expected a 12.4% decline, as the
retailer's Bath & Body Works stores performed well and marked a
significantly higher merchandise margin rate.
Saks Inc. (SKS) and Nordstrom Inc. (JWN) did do
bettter-than-expected, a potential sight that the rise in the stock
market is rousing upper end consumers who tie their net worth to
the equity market's movement. Nordstrom also benefited from in July
from its annual anniversary sale.
Overall, though, "It's hard to say we've hit the bottom yet,"
said Chris Donnelly, partner in Accenture's retail practice.
"Retailers are demonstrating that even terrific incentives are
failing to attract."
Mass merchandisers like Target Inc. (TGT), Costco Wholesale
Corp. (COST), and BJ's Wholesale Club Inc. (BJ) all missed
expectations, with the latter two hurt by headwinds from foreign
exchange rates and gas prices that are still lower than a year
ago.
Teen retailers also had a tough month, with even perennial
winner Buckle Inc. (BKE) succumbing and posting a 2.8% sales
increase, its lowest gain in over two years and after a virtually
unbroken string of double-digit percentage increases.
Even Aeropostale Inc. (ARO), whose low cost teen fashions have
been producing double-digit sales increases, notched a 6%
same-store-sales gain in July, when 9.8% was expected.
Aeropostale did raise its second quarter earnings guidance,
aided by strength from the prior two months.
J.C. Penney (JCP) also lifted its second-quarter earnings
expectations despite its same-store-sales falling a
more-than-expected 12.3% in July.
J.C. Penney and Aeropostale, as well as Kohl's Corp. (KSS), are
among the retailers that are seeing improvement in their gross
margin, or net sales minus the cost of selling the goods. The
companies are benefiting from tighter inventories that necessitate
less discounting and initial signs of getting merchandise from
overseas at lower costs.
Hot Topic Inc. (HOTT) and American Eagle Outfitters Inc. (AEO)
both saw their gross margins hurt by continued deep discounting,
said Brian Sozzi, retail analyst at Wall Street Strategies.
The poor July showing is building a case for extreme caution
going into Christmas. Retailers are likely ordering less, which may
not mean discounts will have to be as big this holiday season. But
any uptick in demand won't be met with supply.
Tax-holiday shifts, fewer clearance options because of leaner
inventories and cooler weather were among the causes of drags on
the month's sales, retailers said.
Discounters, which have largely been holding up amid the
recession, reported largely lower results. Costco reported a 2%
drop in the U.S. excluding gasoline and Target maintained its woes
with a worse-than-expected 6.5% decline. Chairman and Chief
Executive Gregg Steinhafel said Target was beginning to see
"modestly improving risk trends" in its credit-card segment, which
has struggled amid rising delinquencies and charge-offs.
The worst-performing retailer was Abercrombie and Fitch Inc.
(ANF), which posted another month of dour results with a 28%
same-store-sales drop when a 26.9% decline was expected. The
company hasn't reported growth since April 2008 and is increasingly
shedding its no-markdown mantra.
The industry's results were only the third without Wal-Mart
Stores Inc. (WMT) in 30 years. The world's largest retailer said in
May it would stop giving monthly sales data, following the lead of
other smaller peers in recent years. But Macy's Inc. (M) last fall
began giving such data again, saying the economic turmoil warranted
its investors getting a read on the company's performance more
often.
Department stores, for more than a year the laggard among the
various retail segments, again broke the mold. Macy's 11% drop came
in worse than analysts' expectations, while J.C. Penney Co. (JCP)'s
12% drop also missed the analysts' views, but was better than the
company's own forecast. J.C. Penney boosted its fiscal
second-quarter outlook, saying it now expects a 1-cent loss. It had
forecast a loss of 8 cents to 12 cents a share.
Another department store, Nordstrom Inc. (JWN)'s same-store
sales fell 6.9%, not as bad as analysts feared. But Stage Stores
Inc. (SSI) missed analysts' expectations with a 12% drop.
On the apparel side, Children's Place Retail Stores Inc. (PLCE)
beat expectations with a 4% decline in same-store sales, while
Limited Brands Inc. (LTD) posted a 7% decrease, better than
analysts had anticipated.
Gap Inc. (GPS) bested estimates with an 8% drop. The company
also said it expects fiscal second-quarter earnings of 30 cents to
32 cents, above the current estimate of 28 cents from analysts
surveyed by Thomson Reuters.
-Kerry Grace Benn and Ann Zimmerman contributed to this
article
-By Karen Talley; Dow Jones Newswires;
karen.talley@dowjones.com; 212-416-2196