Retailers Post Solid Q3, But See Rising Inventories

 

A strong back-end to the quarter through October boosted aggregate sales a healthy 8.2% over the year-ago period while the bottom line improved by nearly half for the publicly-traded retailers and others reporting quarterly results. Consolidated inventory levels surged more than 7% for the quarter, swinging more than 12 percentage points from the year-ago period.

Sequentially, the third quarter represented more than a 2.5 percentage point improvement over aggregate top line growth of 5.8% during the second quarter. Margins for the quarter improved by an average of almost 300 basis points while average return-on-sales was 4.4%, a full percentage point better than the year-ago period.

Moreover, 19 retailers, or just more than 86% of those tracked by Sports Executive Weekly, reported same-store sales growth in Q3 compared to 16, or just more than 54%, that reported comp growth a year ago.

All three of the major channels exhibited significant year-over-year growth for the quarter, with the two largest of the major channels – Specialty and Sporting Goods – reporting the largest aggregate revenue gains at 9.3% and 5.6%, respectively.

 

Likewise, comps for the Sporting Goods sector increased an average of 3.6% during the quarter due to stellar results from national retail chains, including Hibbett Sports (comps +12.5) which saw its Licensed business drive overall growth, and Dick’s Sporting Goods (comps +5.1%) which reported positive results from it’s DSG and Golf Galaxy stores as well as its eCommerce business. Cabela’s (comps +2.4%), which struggled in the prior sequential quarter due to tough comparisons related to guns/ammo sales, returned to comp growth during the third quarter as strength from its retail and credit card businesses offset a weaker direct channel.

For the Specialty sector, which struggled last year with only 4 of 12 retailers, reporting same-store sales growth, comps rebounded mightily for the third quarter as ten of 12 reported improving comps for the period. Aggregate earnings for Specialty more than doubled during the quarter on a rebound from Foot Locker and notable profit growth for Genesco, Lululemon and Zumiez.

 

The aggregate top line climbed 9.3% on strong Q3s from several major contributors, including Adidas’ retail segment, which reported a 26.9% sales jump on strong soccer sales and growth in the U.S., China and Russia. Genesco, another primary contributor, saw Q3 revenue improve 19.1% on a solid quarter from its Journeys and Hat World divisions. At Foot Locker, which was by far the largest reporting retailer from a net sales standpoint, sales improved 5.4% and comps climbed 8.1% due to strong footwear sales and what CEO Ken Hicks called “a healthy athletic cycle,” in which a number of key product launches served as a springboard for footwear and apparel sales.

For Family Footwear retailers, growth was driven once again by DSW, which was the pacesetter for the quarter and the only retailer with double-digit top line growth (+10.0%). In fact, all five of the Family Footwear accounts tracked by SEW reported revenue growth versus the year-ago period while only one retailer (Payless) saw the bottom line contract.

Looking ahead to fiscal Q4 and fiscal 2010, retailers largely missed estimates during October due to unfavorable weather patterns, but the holiday season has been solid thus far as retailers launch aggressive promotions and frigid, precipitous weather has set in somewhat prematurely across much of the country. The Black Friday and Cyber Monday barometric selling periods were promising precursors – especially for online sales – although economists must wait until January 6 for the final prognosis.