New York—Discounts may have helped comparable store sales rise 2.7% in December, but that stronger-than-expected increase often came with a price(s). Namely, lower margins, customers shifting to online shopping and lowered fourth quarter earnings expectations.
In its monthly assessment of eight large retailers, Thomson Reuters reported the 2.75 increase in comp sales (excluding Gap Inc. which reports later today), that was ahead of its 1.9% estimate and 7.2% increase a year ago.
At Retail Metrics, another retail research firm, its tally of 10 retailers found a 3.6% increase in comp sales beating analysts’ estimate for a 2.6% increase.
Facing ‘Faustian’ Choice?
According to Ken Perkins, president of Retail Metrics, “Mall traffic was sluggish virtually all season with modest upticks immediately pre- and post-Christmas.”
As traffic slowed, retailers are often faced with a Faustian choice: “Either jump on the band wagon and discount heavily at the expense of margins,” Perkins said, “or not participate and experience steep revenue and traffic declines.”
Retailers such as L Brands (Victoria’s Secret), Zumiez, Cato Corp. etc., lowered forecasts as sales slipped or margins narrowed. Costco beat expectations helping to increase the overall sales. (Keeping in mind that most retailers, including Walmart, Target Corp., Kohl’s etc. no longer report monthly sales data, making it difficult to gauge the health of the entire industry from the few that still report).
Interestingly, The Conference Board had reported that the U.S. consumer confidence index jumped to 78.1 in December from 72 in November, returning to near pre-government shutdown levels with sentiment regarding current conditions climbing to a five-year high.
Among the retailers reporting their December sales results today included:
●L Brands Inc. reported a 2% increase in its December comparable store sales below the 3.7% increase analysts had expected. Total sales amounted to $2.098 billion, compared with the prior-year figure of $1.95 billion.
By division, Victoria’s Secret had a 3% increase, helped by strong sales in lingerie and its Pink brand, but fell short of the 4.4% increase analysts expected. Bath & Body Works sales were up 1%, just missing the 1.7% increase analysts expected. La Senza reported a 7% decrease, well off from analysts’ expectations of a 3.7% increase.
Citing margin erosion, L Brands also lowered its fourth quarter earnings estimate to$1.60 a share, down from its previous forecast of $1.67 a share and well down from analysts’ expectations of $1.79 a share.
“The merchandise margin rate was down significantly to last year, and below expectations, driven by incremental promotional activity across all businesses,” said Amie Preston, chief investor relations officer.
●American Apparel said its comp store sales fell 6% in December. Total sales were down 6% to $60.5 million.
CEO Dov Charney blamed tough comparisons since December 2012 comps had increased 15%.
“Although December was disappointing, and we could face a challenging environment for the remainder of the winter, our management team is energized and we are excited about our prospects for spring and summer 2014 as well as for the calendar year as a whole,” Charney said.
●Buckle, Inc. posted a December comparable store sales decline of 2.8%. Total net sales fell 2.2% to $180.9 million.
●Zumiez Inc. said December comp sales declined 2.4% compared with a 1.6% increase that analysts expected, driven primarily by fewer customer transactions as well as a decrease in the amount shoppers spent per transaction. Total sales rose 4.2% to $125.3 million.
By category, Zumiez said its men’s, footwear and boy’s segments posted negative comp store sales while its accessories and juniors posted positive results.
Citing the weaker-than-expected results, Zumiez lowered its forecast. It now expects fourth quarter earnings to be 56 cents to 59 cents a share, on revenue of $226 million to $229 million. The company had previously forecast earnings of 60 cents to 66 cents and revenue of $230 million to $237 million.
●Cato Corp. attributed bad weather to its 4% decline in comp store sales. Total sales “December same-store sales results were negatively impacted by bad weather in a number of our markets early in the month,” says John Cato, chairman/president/ceo.
Consequently, Cato lowered its fourth quarter earnings estimate to 11 to 15 cents a share, down from 17 to 23 cents a year. For the full year, the company lowered its earnings estimate to $1.84 to $1.88 a share, down from its previous forecast for $1.90 to $1.96.
●Stein Mart saw a slight gain in comparable store sales: a 4.5% increase. Total sales were down 1.3% to $175.6 million. The retailer said its sales were unfavorably impacted by last year’s 53rd week which created a timing shift in this year’s calendar.
Linens, dresses and women’s boutique posted the strongest sales while jewelry and men’s sportswear were more challenged. Geographically, Florida, the Southeast and Texas were the strongest while the Midwest and Northeast performed lower than the chain.
“We are delighted with our December comparable store sales increase which was achieved despite adverse weather in much of the country,” said CEO Jay Stein. “Our strong holiday sales, which are on top of great sales increases last year, demonstrate our ability to continue to grow sales which will drive earnings.”
●Costco Wholesale Corp.’s December comp sales beat expectations, helped in part by online sales in the United States and Canada. Total comp sales increased 3% (including impact of fuel and foreign exchange).
That was ahead of analysts’ average estimate for a 1.8% rise in comp sales. Total net sales rose 6% to $11.53 billion.
Excluding the negative impact of foreign exchange and falling gas prices, comp sales rose 5%.
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