The industrys Retail sector experienced much of the same sales and profit upside seen in the Vendor sector (SEW_0422), as earnings growth here more than doubled the pace of sales gains in the first quarter. Concerns about rising gas prices and consumer spending helped push retail stocks lower since the end of March as the total Sports Executive Weekly Retail Index fell 5.2% and the Specialty Index, which includes all Mall Specialty and Sporting Goods stocks, declined 3.1% since the end of the period.
Department Stores were a drag on overall Retail stocks, down 5.6% for the period. The Specialty Index is still up 10% since the first of the year while the overall Retail Index is up 6.1% for the same period.
As we reported last week, the total Industry Index was off 3.8% since Q1 but was up 7.2% since the beginning of the year.
A more telling sign is the return on those public companies since last year at the same time as most companies showed high double-digit gains in share price over that time frame, with Big 5, Dicks SG and and Hibbett nearly doubling in value in the twelve month period. The athletic specialty guys arent far behind as the three remaining mall players, Genesco, Foot Locker, and Finish Line, all saw share increases in excess of 65% for the period. Forzani and Galyans remained the decliners in the last year as Galyans works through new leadership to steady a faltering ship and Forzani re-works its model to focus more on off-price and less on casual apparel offerings.
Overall Retail sector profits were up more than 53% in the first quarter on a 14.5% increase in sales for the period, netting a 100 basis point increase in Return on Sales to 3.9% versus 2.9% in the year-ago period, but much lower than the 6.0% ROS reported in Q4. The profit gains came despite a 10 basis points decline in sector gross margin for the quarter to 36.6% of sales. GM was impacted primarily from a 25 basis point decline at Foot Locker and deeper declines at Sportsmans Guide and West Marine. All other retailers reported gross margin gains for the period.
The Specialty segment saw a nice 6.8% Return on Sales, delivering a 40.5% jump in net income on an 16.3% sales gain. ROS is helped here a bit from the mix of net margin and operating margin reported for the companies reporting operating income from retail divisions of a larger company. Gross margin for the segment improved 100 basis points to 33.2% for the period, but liquidation sales still took their toll as margins fell 480 basis points from the stellar Q4 report.
All retailers in the segment showed healthy improvement in the net income line for the quarter, led by The Buckle (+97%) and Pacific Sunwear (+87%). Journeys, which reports operating income as a division of Genesco, saw a 66% improvement in its profit line.
Timberlands retail group increased operating profit 113% in the period.
Much of the profit and gross margin gains came on increased leveraging of stores due to increased sales. On the sales side, it was FINL again with comps increasing 19% for their fourth quarter that ended February 28. Golfsmith comps rose 23.9% in the quarter and Hat World looks to be a nice addition to the Genesco portfolio, reporting a 23% jump in comps for its first month under the GCO umbrella. Foot Locker held back comp store growth with a meager 0.3% gain for the period.
On a total sales basis, Oakleys owned-retail led the growth with a 55.2% increase in sales for the period, while Golfsmith posted a 43.7% sales gain for the quarter, due largely to the acquisition of the Don Sherwood Golf & Tennis chain in San Francisco.
The Sporting Goods segment was heavily impacted by the inclusion of Gander Mountain in the numbers this year.
The first quarter is generally a tough period for the newly minted public company, a reality they hope to change with the addition of more stores in Texas and throughout the South. Cabelas, the other new arrival for the segment, had quite a different story, posting a 158% increase in net income for the period. Without GMTN and CAB in the numbers, the Sporting Goods segment saw profits surge 317% for the period, eking out a 1.4% ROS. Although the Return on Sales here is small, it is more than triple the 0.4% ROS figure for Q1 last year.
With CAB and GMTN in the numbers, ROS improved to 0.9% of sales from a negative 0.1% in Q1 last year.
The New Sports Authority had a more positive impact on the segment this quarter using the pro forma numbers excluding extraordinary charges for both years. The old TSA stores were again a real drag on comps and sales results, but the operating economies of scale and improving margins from the leverage of size led to clear benefits in the bottom line. Galyans was a different story as they limit new growth in an effort to better define themselves even as Dicks and Gander Mountain make inroads in their hometown market. While GLYN narrowed its Q1 loss and improved margins, the costs of defending their turf as DKS made their push into Indianapolis stymied further improvements in both gross margin and net income.
The segment welcomes two new companies this year, with Outdoor players Cabelas and Gander Mountain announcing IPOs in the first quarter. Gander has started to turn the business around into a profitable venture following at least five years of losses, but Cabelas has been a solid performer with its catalog business as a profitable base.
Hibbett again leads the segment in the ROS category, posting an 8.4% return, up from 6.7% in Q1 last year.
