June retail results surprised many that had become accustomed to the run-up in retail sales performance over the last six months or so. But as tax rebate checks get spent, gasoline prices stay high, and the Fed starts to raise interest rates, the consumer may now be taking a step back from the trend that has seen retail stocks become the darlings of Wall Street. Throw in unseasonably cool weather in the Northeast and Midwest in June and we get a month that didnt even meet reduced expectations, pushing the SEW Retail Index down 1.4% for the week while the S&P Retail Index fell 0.8% for the week.
“It was a surprisingly weak performance in June, given that it started out pretty healthy,” said Michael P. Niemira, chief economist at The International Council of Shopping Centers. “Everything from economic factors to weather pushed down sales.”
ICSCs June sales survey of 73 retailers was up only 2.9%, the weakest performance since June 2003, when it rose 2.4% versus the previous year. The June tally fell short of Niemira's reduced forecast of 3.0% to 3.5% and well below his original estimate of a 4.5% increase. Sales rose by an average of nearly 6% over the first five months of the retail calendar year.
The slowdown at retail came despite surprisingly good news on the job front as the Labor Department reported that the number of people signing up for first-time jobless benefits fell the previous week to the lowest level in more than three years. But the jobs picture was still seen as shaky as only 112,000 positions were added last month, less than half of the number expected by analysts.
Carl Steidtmann, chief economist at Deloitte Research, believes that even with job growth, this is the “beginning of a slowdown in consumer spending”, according to published reports. He said the effects of mortgage refinancing and tax refunds are receding as interest rates rise, taking away from “consumers' ability to spend.”
“Our view is that some of these shortfalls are likely to bleed into the back-to-school periods,” said Lazard LLC analyst Todd Slater, in another report.
Although Niemira said he believes it is unlikely retailers will repeat June's performance, he tended to agree with the other analysts positions, predicting that sales will slow to a “more sustainable rate” of 4% for this year. He said much of the consumers spending trend will depend on the health of the labor market. ICSC is estimating a 3% to 4% retail sales increase for July.
Tracy Mullin, president of the National Retail Federation, disagreed with most other retail-watchers, stating that she expects “a rebound in July as summer clearance sales pick up and the beginning of the back-to-school season gets into gear.”
She noted that retailers have not reacted to slow June sales with unplanned markdowns, which should preserve second-quarter profits.
While retail performance as a whole was sluggish, the luxury sector continued its leading position. Neiman Marcus (+13.0%) and the Saks Fifth Avenue (+18.3%) division of Saks, Inc. led all retailers that SEW tracks in the Retail Index, with the exception of Aeropostale (+21.3%). Nordstrom joined the luxury group of positive performances with a 5.7% gain of their own, a number that still fell about one point short of analysts expectations.
One surprise came from JC Penney, which led all other department stores and mid-market retailers with a 4.8% gain for the month. Still, total Department Stores channel sales rose just 1.2% for June, up from the 1.1% increase in May. Discount Stores saw a 1.5% gain for June, which was held back in large margin from the slowing trend at Wal-Mart. Wal-Mart Stores said same-store sales rose 2.2% in June versus the year-ago period. Analysts were expecting 3.6% gain. The total 2.9% gain seen at retail would have been up 3.4% without the WMT number.
Aside from Drug Stores, Wholesale Clubs were again the key performer, reporting a sector gain of 6.3% for the month. BJs Wholesale Club led those chains with a 7.4% increase and Costco reported a 6.0% sales increase. Analysts had predicted an 8.4% gain for COST.
Footwear Stores were the biggest decliner for the month, reporting a 1.9% decrease as a sector, led by the declines at Show Carnival.
Shoe Carnival blamed much of its 4.6% June decrease on the shift in the July 4th holiday into July this year. Total sales increased 2.2% to $48.6 million from sales of $47.5 million in July 2003. The June comp decline came on top of a 5.4% decrease in June last year.
The SCVL Womens Dress/Casual business was down “just into double-digits” for the month, according to SVP/CFO Kerry Jackson. The Mens business was down in high-single-digits and Childrens, which also includes Athletics, was “about break-even”. Mens and Womens Athletics was down low-single-digits. Total Footwear was down 4.8% while Accessories was up low-singles.
The retailer said the end of June “turned difficult” after a “choppy” start to the month. SCVL said that the liquidation of seasonal products was going well and that the level of seasonal products was “down substantially” from LY. Overall inventory was “up modestly” on early athletic BTS receipts. Margins were “higher than anticipated”
SCVL expects July comps to be down mid-singles as certain states shift their tax-free weeks from the last week of July to the first week in August and comps are estimated to be down 3% for the second quarter.
Famous Footwear took another step back in June, posting a 3.2% comp store sales decline on top of a 3.8% decrease in June last year and a 2.2% decline in May this year. Total sales were also off, declining 0.4% to $98.6 million for the month. Sales of Athletic Footwear were said to have “continued strong, spurred by the introduction of exclusive product”, but the company said it was not enough to offset weakness in the seasonal Sandal and Women's Casual footwear categories.
Parent Brown Shoe Company cited “good margin performance” at the family footwear chain, but soft customer traffic at FF and its sister chain, Naturalizer, as well as weakness in its Children's wholesale business prompted the company to lower its guidance for the current quarter and the year.
BWS lowered second quarter diluted EPS guidance range to 45 cents to 50 cents per share, which includes five cents in transition costs related to the new Bass license, from previous guidance in the 60 cents to 65 cents per share range. BWS earned 62 cents per share in Q2 last year.
For the year, BWS expects diluted EPS in the range of $2.90 to $3.10, versus $2.52 for full year 2003. Two months ago, BWS had upgraded its full-year guidance to $3.20 to $3.25 per share, compared to previous guidance of $3.15, citing strong sales.
BWS shares were down 18.8% for the week to close at $33.19 on Friday.
Management said they expect the Athletic business to “remain healthy” for the rest of the year and pointed to the introduction of “new, exclusive athletic product for the back-to-school period” as an opportunity.
DSW Shoe Warehouse saw little of its recent magic play out in June as comps dipped 0.8% versus a 3.7% increase in June last year. Total sales increased 14.7% to $84.2 million in June versus $73.4 million in the year-ago period. Parent Retail Ventures, Inc. announced total sales increased 1.5% to $240.6 million for the month from $237.1 million for the year-ago period. RVI's same-store sales decreased 4.4% for the five week period, helped by a 2.6% comp increase at Filenes basement which was more than offset by a 7.7% decrease at its core Value City stores.
Apparel Specialty chains showed mixed results for the month of June in the ICSC report, but were up 4.0% as a whole. ICSC does not include Pacific Sunwear and The Buckle in this sector in this survey, but does include Ross Stores (huh?), which saw a 4.0% decline for the month. The other stores in the sector are from the apparel specialty sector.
Pacific Sunwear continued to slow its growth, due in large part to less than robust gains at their d.e.m.o. unit. Total PSUN comps were up 7.0% for the month on top of a 13.4% increase last year.
PacSun same-store sales were up 7.5% and d.e.m.o. same-store sales gained 1.5% for the month. Management said the comp gain for the month exceeded its previous guidance for a 5.0% gain and analysts consensus estimate for a 5.8% increase.
At PacSun, the Guys business was up mid-single-digits and the Girls business was characterized as “slightly positive” after being down three percent in May. Footwear again showed comps increasing more than 20% and Accessories was up in high-single-digits. Management said the BTS floor will be set by July 21 and will feature a “more feminine” assortment for Girls, including more color and skirts.
At d.e.m.o., the Girls business was up high-single-digits for the month while the Guys business was “slightly negative”. Accessories comps were seen as “slightly positive” for the month. Management said the d.e.m.o. floorset for BTS will be completed by August 2 and will be “cleaned up” and feature dressier styles for Guys and sexier looks for Girls.
The Buckle was back in double-digit territory in June as comps increased 10.3% versus a 1.0% decline in the year-ago period. Total sales increased 16.9% to $34.7 million.
