Temperate Front-Half Sinks October Comps; Industry Remains Optimistic for Holidays

 

Only about 40% of reporting retailers were in line with analysts’ forecasts for the period as temperate weather in the front-half of the month cut into seasonal apparel sales. October is historically considered to be somewhat of a “dead-zone” for retailers, as it falls between the peak back-to-school and holiday selling periods. Consolidated comp store sales growth for the month represented the smallest gain since April (+0.8%) as clothing retailers and department stores sat on cold weather inventory amidst the driest, warmest October in 18 years.

Mercifully, a cold spell during the back-end of the four-week fiscal month allowed some retailers to recoup some of their losses, but more importantly it was a clear indicator that although consumers still appear to be in a “buy now, wear now” state of mind, they also seem to be more willing to pay full price for the right product. Likewise, October 2010 also anniversaried against a relatively strong year-ago month that was one of the first to see cash strapped consumers finally emerging from a highly-recessive buying period. Despite all this, the month still recorded 1.6% consolidated growth, according to the International Council of Shopping Centers, which tracks 32 major retail chains, excluding Wal-Mart. Overall, the ICSC estimated that weather depressed industry sales by one full percentage point for the fiscal month. 

 

ICSC also said that Weather Trends International, a company that specializes in business-oriented weather forecasting, expects November to be a “colder and snowy month,” which should allow retailers to unload stocked-up winter apparel and seasonal items.

For Holiday 2010, economists expect retail sales to be the highest since at least pre-recession 2007, but it remains to be seen if, like last year, shoppers stampede into stores on Black Friday weekend, then dissipate until retailers are forced to mark-down items at the last minute. In any regard, the market is still in a recession, and Holiday 2010 will be highly promotional earlier rather than sooner, as evidenced by numerous retailers who have advertised steep online discounts and announced holiday lay-away programs to help shoppers spread out spending.

 

For November sales alone, the ICSC forecasts healthy industry gains of 3-4% due to favorable weather conditions and “early and aggressive holiday marketing and promotions.” For the Holiday season (Nov/Dec) the ICSC is forecasting comp growth of between 3% and 3.5%, which, if achieved, would be the strongest since Holiday 2006.

October’s strongest segment performer was the Luxury sub-segment, which saw healthy gains as improving stock market trends benefitted wealthier consumers, who may be starting to spend again with stronger prospects for continuation of the expiring Bush tax cuts.

Strength from Nordstrom (+3.4%), Saks (+8.1%) and Neiman Marcus (+11.5%) bolstered consolidated segment growth by 6.3%. Of note, Nordstrom saw comps growth for its full-priced locations (+4.8%) outpaced consolidated comps.

For the other Department Stores, overall comps dipped on the aforementioned unfavorable weather, although Macy’s (+2.5%) topped forecasts on strong sales of its Kenneth Cole Reaction men’s sportswear launch and its recent My Macy’s localization initiative, in which the retailer is focusing on tailoring its merchandise selections to local markets.  Kohl’s (-2.5%), on the other hand, missed forecasts on insurmountable weakness in the front-half of the month, while J.C. Penney (-1.9%) and Stage Stores (-3.5%) also missed on lower demand for fall merchandise. Dillard’s (-1.0%) slipped on weakness from the Central and Western regions while the Bon-Ton (-4.2%) saw significant softness despite strength from shoes, dresses and cosmetics.

In the Teen segment, Aeropostale (-2.0%), American Eagle (-2.0%), Abercrombie & Fitch (+2.0%) and Hot Topic (-8.5%) all followed better-than-expected September comps by missing estimates for October, although management for American Eagle said the company was boosting its profit guidance due to strong sales and healthy margins.

 

Aeropostale appears to be losing a pricing war with American Eagle and A&F, each of which has launched promotions and cut selling prices in the trailing months. At Gap (+2.0%), comps heftily topped forecasts on strength from the Old Navy and Gap stores, and management subsequently bumped quarterly earnings forecasts to between 47 cents and 48 cents per share for the third quarter. 

 

The Wet Seal (-0.7%), The Buckle (+2.6%) and Zumiez (+21.5%) all exceeded expectations for the month, with Zumiez nearly tripling forecasts and subsequently hiking Q3 earnings guidance from a range of 28 cents to 30 cents per share to a range of 36 cents to 37 cents per share.

For Discounters, consolidated comps edged up just under 1% on better-than-expected performances from Ross Stores (+4.0%), Target (+1.7%) and TJX Cos. (flat). Management at Ross and Target said strong sales during the back-half of the month offset first-half weakness, while TJX continued to see strong returns from its Marmaxx Group (TJ Maxx, Marshalls). TJX president and CEO Carol Meyrowitz said she was particularly pleased that TJX had overcome temperate weather.  Stein Mart (-6.5%), citing warm weather and promotional shifts, missed forecasts badly despite the majority of shoppers continuing to express an affinity for discounted designer labels.
Warehouse clubs exhibited strength during the month with Costco (+6.0%) topping estimates on inflation in gasoline prices and strengthening foreign currencies and BJ’s Wholesale (+3.7%) citing comps growth in every region and sales that were spurred by a Halloween calendar shift.

 

Zumiez reported comparable store sales increased 21.5% for the four-week period ended Oct. 30 compared to a 8.9% decline in the year-ago period. Total sales increased 27.3% to $31.4 million for the month from $24.7 million in the year-ago period.

Comparable sales growth was driven by an increase in comparable store transactions. ZUMZ said that dollars per transaction were down due to a decrease in average unit retail and a decrease in units per transaction.

ZUMZ’s highest comping region was the South, which was up 30%, while stores in the Northeast comped up approximately 19% and stores in the Midwest and West comped up about 17% and 16%, respectively. The remaining increases coming from e-commerce sales.

The retailer updated guidance for Q3 and now expects EPS between 36 cents and 37 cents per share, up from initial guidance of between 25 cents and 27 cents. The guidance is “better-than-planned” sales and improved product margins.

 

The Buckle reported that October comparable store sales increased 2.6% while total net sales increased 6.7% to $71.1 million compared to net sales of $66.6 million in the prior-year fiscal October.

On the men's side of the business, which represented approximately 38% of total sales for the month, sales were up about 5% but overall price points were down approximately 3% for the period. Positive categories on the men's side included denim, woven shirts, and accessories.

Women's sales, which represented about 62% of total sales, were up approximately 8% versus the prior-year period. Positive categories on the women's side included denim, woven tops and accessories. Overall price points on the women's side of the business were up approximately 3%.

Accessory sales for the month increased 20.5% in comparison to the prior-year month, while footwear sales increased 1.5% for the period.