July Retail Sales Surprise, Stronger Than Expected

In Reports, What's New, Industry News by Accessories Staff

New York—Although July retail sales were down from a year ago, many retailers defied doom and gloom expectations to post comparable stores sales gains and raising optimism about back to school sales.

The 25 retailers tracked by Thomson Reuters reported a 4.4% gain in comparable stores sales meeting expectations for the month, the traditional kick off for the back to school season, the second most important selling season behind holiday.

The International Council of Shopping Centers’ (ICSC) preliminary tally of retailers’ comparable store sales—a key indicator of a merchant’s health—was up 4.6%, a slower pace than June’s 6.9% gain but in line with forecasts.

July turned out to be the warmest month in the United States since 1960, according to Planalytics, a weather-traking firm for business, yet the heat wave may have actually helped retail sales.

More Optimism about Back to School Sales

“Heat waves and high temperatures drove many shoppers to air-conditioned malls, which gave a nice boost,” said Ken Perkins of Retail Metrics. But off price promotions and clearances were a factor, too.

Companies such as Hot Topic, Wet Seal , Limited Brands, TJ Maxx, Saks, Costco, Macy’s and Abercrombie & Fitch all performed admirably, and some even raised full year 2011 guidance as a result.

Nevertheless, some analysts warned that the surprisingly strong July sales give a misleading impression since they could be partly explained by higher ticket prices linked to inflation costs and did not necessarily signal consumers were buying more units than last year.

Commenting on today’s sales figures, Brian Sozzi from Wall Street Strategies called it “the oddest month of same-store sales releases that I have ever seen.” As retailers across most channels exceeded forecasts and raised quarterly earnings while most economists predicted sagging consumer confidence would narrow sales,  even stores that missed their same store estimates still raises their quarterly earnings forecasts, Sozzi said.

The explanation? Sozzi thinks retailers are raising prices due to inflation and costs and that there’s “early interest in back to school merchandise” due to promotions. Plus price increases aren’t correlating into a sharp decline in sales, Sozzi added.

“Retailers certainly are dealing with higher costs and are taking steps to avoid shocking consumers,” said Alison Paul, U.S. retail leader at Deloitte. “But there is no question prices will have to be raised.”

Price Increases to Deter Sales?

“All of this has put the consumer in a tenuous mood going into the back-to-school season,” said Patrick McKeever, retail analyst at MKM Partners.

The National Retail Federation (NRF) recently reported it expects total back to school spending to increase 6.8% to $22.8 billion from last year, while spending per family is expected to decline by 0.5% to $603.63 from a year ago.

In its back to school forecast, the ICSC expects sales at apparel, footwear, electronic and books stores to rise 3.0% to $39.0 billion during the July to September period, following a 5.0% gain last year. Michael P. Niemira, chief economist and director of research for ICSC, notes that while this year’s growth rate trails the average pace of the last 15 years, “the overall message from this projection is that sales are still likely to be quite healthy.”

Noting that Target shoppers shoppers spent more per transaction last month, Gregg Steinhafel, ceo, said, “Back-to-school sales are off to a solid start, contributing to our confidence in the strategies we have in place and our ability to execute them, especially as we head into the 2011 holiday season.”

Meanwhile, ShopperTrak predicted higher retail prices will offset fewer shoppers at the stores, estimating sales will increase 3.8% in August over last year, with a 2.9% decline in foot traffic.

“With back-to-school shoppers planning fewer trips to the store—and continued economic uncertainty—retailers must maximize the limited number of opportunities to convert browsers to buyers,” said ShopperTrak co-founder, Bill Martin.

Among the retailers reporting their July sales, and in some cases, preliminary second quarter results were:

●Macy’s Inc. reported its July comparable store revenue rose 5%, beating analysts’ average estimates for 4.1% increase. Total sales increased 5.7% to $1.612 billion, up from $1.525 billion in July 2010.

Sales gain online as well as “fresh, interesting and distinctive” mix of merchandise was responsible for the increases, Terry Lundgren, ceo, said. “This is especially encouraging given the comparison to our robust same-store sales performance in July and second quarter last year,” Lundgren said.

For the second-quarter, Macy’s total sales grew 7% to $5.9 billion, beating the company’s forecast for a 6% increase. Comparable store sales were up 6%.

●JCPenney reported its July comparable store sales increased 3.3% over the same period last year. Total sales increased 1.0% to $1.173 billion.

The company said best performing categories included women’s apparel and accessories, and fine jewelry. Specifically, Liz Claiborne, Modern Bride and Sephora inside jcpenney were key drivers of sales and traffic throughout the month as well as “wear now” summer apparel and accessories. All regions of the country delivered positive results for the month, with the southwest region reporting the best results in July.

●Kohl’s reported a 4.6% decline in its July comparable sales, below analysts’ average estimate that had predicted a 3.6% increase. Despite the decline, the company raised earnings its guidance for the quarter because higher prices resulted in better profit margins while the retailer kept a tight lid on expenses. For the second quarter, total sales rose 3.6 percent and same-store sales rose 1.9 percent.

Kevin Mansell, Kohl’s chairman and ceo, called the results “disappointing, particularly given the strong June results we had achieved.” Kohl’s now expects to earn $1.07 to $1.08 per share for the third quarter, at least five cents more than the $1.02 per share than analysts’ average estimate predicts.

●Dillard’s posed a 9% increase in its July comparable store sales while total sales rose 8% to  $458.5 million, compared to sales of $425.2 million during the same period last year.

Sales in men’s apparel and accessories were “significantly” above expectations for July, while sales in the home and furniture category were “significantly” below trend, the company said.

●Saks Inc. reported July same store sales rose 15.6%, easily topping analysts’ average forecast expecting an 8.5% increase. Total revenue rose 13.8% to $191 million from $167.9 million a year earlier.

For the second quarter, same store revenue rose 15.5%. Total revenue rose 12.8% to $583.3 million. Better-performing categories included women’s apparel and footwear and men’s clothing and accessories.

●Nordstrom Inc. said its July same store revenue rose 6.7%, more than the 5.8% analysts expected. Total revenue rose 11.5% to $993 million. Nordstrom said its “anniversary sale” typically makes July its second-largest sales month of the year.

In its second quarter, same store revenue grew 7.3% from a year earlier. Total second quarter sales grew 12% to $2.72 billion, the company said, citing a preliminary figure.

●Neiman Marcus Inc. said comparable store revenue for its Neiman Marcus and Bergdorf Goodman stores rose 6.5%, benefiting from strong sales of designer handbags, footwear and women’s contemporary sportswear. Other strong sellersb included evening wear, beauty products and men’s. Total revenue for the period ended July 30 increased 7.9% to $244 million.

For its fourth quarter revenue, comparable store sales gained 11% with total revenue up 11.3% to $920 million.

●Bon-Ton Stores reported today that sales fell 2.3% in July and 2.2% for the second quarter. July comparable store sales declined 1.6% greater than the 0.3% decline analysts’ average estimate had forecast.

Total July sales were $173.6 million this year, compared with $177.6 million in 2010. Second quarter sales decreased to $595.5 million compared with $608.6 million in second quarter last year. For the first half of 2011, total sales are down 1.4% from 2010.

Best-performing departments include home, fine jewelry, cosmetics and men’s and ladies’ sportswear. The weakest performing departments were juniors, children’s, footwear and furniture.

●Stage Stores posted a 0.8% increase in its July comparable store sales. Total sales increased 2.2% to $102 million from $100 million in the prior-year period.

Best performing comparable store sales by category included children’s, cosmetics, footwear, home and gifts, junior’s and swimwear. Geographically, the Midwest, Southeast and Southwest regions had comparable store sales gains during the month.

For the second quarter, the company reported that total sales increased 2.3% to $353 million from $345 million last year and comparable store sales increased 0.9%.

●Target said its July comparable store sales rose 4.1% buoyed by shoppers buying more groceries and health and beauty products. Analysts’ average estimate had expected only a 3.7% increase. Total revenue rose 6% to $4.84 billion.

A positive sign—especially for the back to school season–Target said was that its shoppers spent more per transaction.

For its second quarter, same store revenue rose 3.9% and total revenue rose 5.1% to $15.9 billion, ahead of analysts’ estimates for $16.07 billion. The company forecast its August comparable store sales to rise low- to mid-single digits.

●Gap Inc. reported that while its net July sales edged up to $949 million from $948 million in the prior-year month, its comparable store sales dropped 5%, compared with a 2% increase in July 2010 and a 0.7% decline analysts’ average had expected. “While July proved to be challenging, we’re pleased that we grew net sales for the quarter and that we’re able to guide earnings per share above analyst expectations,” said Glenn Murphy, chairman and ceo.

For its second quarter July 30, Gap reported net sales climbed 2% to $3.39 billion and projected earnings would range between 33 cents to 34 cents. Same-store sales, however, fell 2%. Analysts’ average estimates expected a profit of 29 cents a share on revenue of $3.34 billion. Its Gap North America same store sales slid 3%, while Banana Republic sales fell 2% and Old Navy’s results were flat. International same-store sales also slipped 4%.

Limited Brands, operator of Victoria’s Secret and Bath & Body Works, said its July comparable store sales rose 6%, increasing on the continued strength of its Victoria’s Secret brand, which posted a 9% comparable store sales. Analysts’ average estimate had expected a 4.2% increase in the company’s comparable store sales.

For the second quarter, Limited Brands raised its earnings guidance to 44 cents a share to 46 a share, up from its previous guidance of 38 cents to 43 a share. Analysts’ average estimated forecast second quarter earning at 44cents a share in the quarter.

●Abercrombie & Fitch, which no longer released monthly sales figures, reported today however, that its second quarter comparable sales rose 9% as traffic increased especially its Hollister division.

Second quarter comparable store sales rose 5% at Abercrombie & Fitch stores, 7% at Abercrombie kids stores and 12% at Hollister. Total second quarter revenue rose 23$ to $916.8 million from $745.8 million for the quarter ended July 30. Analysts’ average estimate expected revenue of $873.5 million.

●Aeropostale said for the second quarter, net sales decreased 5% to $468.2 million, from $494.7 million in the year ago period. Same store sales decreased 14%, compared to a same store sales increase of 4% last year. “We are very disappointed with our second quarter financial results that were clearly unacceptable. As a result of a lack of balance in our merchandise assortments, as well as continued promotional and macroeconomic challenges, we significantly increased the depth and breadth of our promotions and markdowns,” said Thomas Johnson, ceo.

Furthermore, based on the lower than expected sales and margins for the quarter, the company now expects net income to be in the range of 2 cents to 3 cents a share, down from its previous expected earnings of 11cents to 16 cents a share. Analysts’ average estimates expect earnings of 14 cents a share.

●Hot Topic reported its exceeded a projected 0.5% increase in its July comparable store sales with a 7.3% rise in comparable sales, aided by merchandise related to the latest blockbuster “Harry Potter” movie. The teen retailer reduced its forecast second quarter loss to 8 cents a share from 9 cents to 11 cents.

●Wet Seal posted July comparable stores sales increase of 7.4%, beating analysts’ average estimated expecting 3.3% growth. By division, July comparable store sales increased 7.8% at Wet Seal and 5% increase at Arden B. Total net sales grew 12.9% to $46.4 million from last year, with Wet Seal sales increasing 14.6%and Arden B sales growing 3.8%. However, the company’s e-commerce sales decreased 17% over last July. “

“We are encouraged by our July sales results as we begin the back-to-school season,” said Susan McGalla, ceo.

●The Buckle, Inc. said its July comparable store net sales increased 6.8% from the prior year but missed analysts’ average estimate expecting a 10.5% increase.  Total sales increased 9.4% to $64.7 million from $59.1 million a year ago.

For the second quarter, comparable store sales gained 8.9%, and total revenue rose 12.6% to $212.4 million.

● Zumiez, which sells apparel, equipment and accessories to the skater crowd, posted a 4.9% rise in its July same store sales, disappointingly short of analysts’ average estimate of a 7.5 % increase. Total sales rose 12.3% to $38.7 million.

●Ross Stores reported that its July sales increased 11% to $635 million from $573 million last year. Comparable store sales grew 7%. For the quarter ended, July 30 sales totaled $2.09 billion, up 9% from $1.91 billion in the prior year. Comparable store sales were up 5% on top of a 4% increase in the prior year.

“Dresses and Shoes were our best-performing merchandise categories during the month, while Texas and Florida remained our strongest markets,” said Michael Balmuth, vice chairman/ceo. “Based on our better-than-expected sales and gross margin performance in July, we now estimate earnings per share for the second quarter ended to be $1.27 to $1.28. This represents projected EPS growth of 19% to 20% on top of exceptional 30% and 52% gains in the second quarters of 2010 and 2009, respectively.”

Previously, the company forecast earnings per share in the $1.20 to $1.22 range. Analysts’ average estimates expect earnings of $1.24 a share.

●Stein Mart reported July comparable store sales decreased 2.8%. Total sales were $67.2 million, a decrease of 4.1% from $70.1 million in July 2010. For the year to date, comparable store sales increased 0.3% and total sales decreased 0.6% to $573.7 million.

●Cato Corp. reported its comparable store sales fell 3% in July. Total sales were $63 million for July, little changed from $62.9 million for the same period last year. For its second quarter ended July 30, sales were up 1% to $234.1 million, a 1 percent increase from a year ago. Comparable store sales fell 1% in the quarter.

“July same-store sales reflect the difficult economic conditions and uncertainty affecting our customers, especially the lower-income customer,” said John Cato, ceo.

●TJX Companies reported that its July comparable sales were up 4% and total sales increased 8% from last year to $1.6 billion. The comparable sales figure beat analysts’ estimates which expected a 3.5% increase.

The company also raised its second-quarter earnings guidance to a range of 88 cents to 89 cents a share from the previous forecast of at or slightly above the high end of its range of 81 cents to 86 cents per share. Analysts’ average estimates expect earnings of 87 cents a share.

Costco said July comparable store sales rose 10%, higher than analysts’ estimates expecting 8.6%, while net sales jumped 15% to $6.74 billion. Comparable store sales in the U.S. division rose 6%, while international sales rose 22%. Excluding the effects of inflation in gasoline prices and stronger foreign currencies, comparable stores sales in July rose 5%. Costco said the latest four-week period included 27 days in the U.S. versus 28 days last year. The calendar shift hurt this year’s comparable sales by about 3%.

●BJ’s Wholesale Club posted a 9.2% increase in its July comparable club sales including gasoline, ahead of analysts’ average estimate for 6.6% growth. Merchandise comparable club sales, excluding the impact of gasoline, increased by 5.4%. Total sales rose 12.4$ to $854.84 million from a year ago.

For its second quarter, comparable club sales, including gasoline, were up 7.8% and total sales grew 11% to $2.98 billion from last year.

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