July Same-Store Sales Summary: No Boost for Retailers

As expected, July didn’t provide much of a boost to retailers, as the majority of companies reporting monthly results missed consensus analyst estimates. A combination of unseasonably cool weather, a later Labor Day this year causing tax holidays and promotions to be shifted into August, and consumers continuing to be cautious with their spending resulted in the 11th consecutive month of same-store sales declines.

Overall net sales for July were $27.976 Billion, a 2.7% decline from July 2008. On a comparable same-store basis, sales were down 4.6% from the prior period vs. a gain of 1.7% last July. Retailers continue to be up against tough comparisons from last year when shoppers had stimulus checks to spend. There was decidedly little gains in July from back-to-school spending. Almost every retailer mentioned the effect of Labor day falling a week later than last year – most didn’t start back-to-school promotions until late July or early August, and it seems most consumers are willing to wait for deals to begin the seasonal shopping.

While sales tax holidays throughout August should provide a marginal incentive for shoppers, the extraordinary success of the cash-for-clunkers program could siphon off discretionary dollars that would have otherwise been spent on items such as clothing and home furnishings. With a steady diet of deep discounts and promotions available to them, consumers aren’t going to be paying full price anytime soon.

The theme for this month was inventory control and cost cutting. The majority of retailers said they had much lower levels of clearance inventory than last year, and continue to focus on the bottom line. Though the majority of stores have struggled to drive sales growth, they have managed to deliver on the bottom line, as companies including Gap (GPS), JC Penney (JCP), and American Eagle Outfitters (AEO) raised their guidance for 2nd quarter earnings.

However, cost-cutting and inventory management can only go so far. The best that can be said about top-line results since the start of the year is they have stabilized at a low level. Most retailers have lean inventories prepared for back-to-school shoppers, and are willing to run out of merchandise rather than be forced into steep markdowns. Expectations for back-to-school season are extremely low, so the hope is that the Holiday season can save the day. Based on the trends in personal income and savings, unemployment, and consumer confidence, we don’t see much near-term upside for the retail industry. We expect same-store sales for August to be down in the range of -4-5%.

Below we break out the results by sector and provide the highlights of each company. For more detailed information on company performance, click on the company name below:

Apparel & Accessories Stores:

Total net sales for the month declined 7.7% to $2.691 Billion from a year ago, while same-store sales decreased 8.8% on top of a 5.2% decline a year ago. This was the 15th consecutive month of negative same-store sales, and next to department stores apparel has consistently been the worst performing sector. While standouts Aeropostale (ARO) and The Buckle (BKE) once again posted positive year-over-year comps, both companies missed analyst estimates and growth has slowed considerably over the past couple of months. The worst performer in the sector is once again Abercrombie & Fitch (ANF), who’s posted 12 consecutive months of double-digit declines. Based on the outlook for back-to-school, the sector will most likely continue to struggle, and the hope is that shoppers will be ready to spend again by Christmas.

Company	Net Sales	Net Sales Chg	Same-Store Sales Chg
Abercrombie & Fitch	$236.0 Million	-22.0%	-28.0%
Aeropostale	$156.8 Million	13.0%	6.0%
American Apparel	N/A	N/A	-13.0%
American Eagle Outfitters	$215.0 Million	-8.0%	-11.0%
Buckle	$61.5 Million	7.9%	2.8%
Cato	$60.4 Million	-3.0%	-3.0%
Children’s Place	$102.1 Million	-3.0%	-4.0%
Destination Maternity	$38.5 Million	-8.4%	-8.3%
Gap	$924.0 Million	-7.0%	-8.0%
Hot Topic	$52.3 Million	-6.9%	-8.5%
Limited Brands	$556.2 Million	-7.5%	-7.0%
Stage Stores	$97.0 Million	-10.1%	-11.9%
Stein Mart	$73.3 Million	-9.0%	-5.5%
Wet Seal	$42.7 Million	-8.0%	-12.1%
Zumiez	$29.9 Million	-5.4%	-16.8%

Department Stores:

Total net sales were $5.434 Billion, a decline of 8.1% from July 2008, while sales were down 9.1% on a comparable same-store basis from the year ago period. Department Stores have been the worst performing sector throughout the recession, and they have now reported 15 consecutive months of comparable store declines. The one bright spot was Kohl’s (KSS), who reported their first month of positive same-store sales since last June. Nordstrom (JWN) beat estimates, and results have been slightly improving since the start of the year, but a big reason for July’s better-than-expected results was the Anniversary Sale which started on July 17th. JC Penney (JCP) started early and often with back-to-school promotions, but wasn’t able to lure many shoppers in July. We expect Kohl’s to continue to outperform its peers on a relative basis, but overall the sector will continue to struggle through the back-to-school season.

Company	Net Sales	Net Sales Chg	Same-Store Sales Chg
Bon-Ton	$178.8 Million	-9.6%	-9.8%
Dillards	$439.1 Million	-15.0%	-12.0%
JC Penney	$1.194 Billion	-10.6%	-12.3%
Kohl’s	$1.080 Billion	5.2%	0.4%
Macy’s	$1.377 Billion	-10.7%	-10.7%
Neiman Marcus	$199 Million	-25.8%	-27.3%
Nordstrom	$806.0 Million	-4.1%	-6.9%
Saks	$159.7 Million	-14.9%	-16.3%

Discount & Variety Stores:

Total net sales decreased by 3.0% to $12.666 Billion from the same period last year, while same-store sales declined 5.2% – the worst results since November. While the sector was luring frugal shoppers last summer, most companies have struggled over the past few months as consumers cut back on everything but necessities. The strongest performers have continued to be off-price retailers TJX and Ross Stores (ROST), who have taken market share away from traditional department stores and apparel stores. Wholesale clubs have been burned by gas price inflation and foreign exchange, but even stripping those out have seen sales growth slow. We should see a pickup in demand from back-to-school shoppers, but there is no sign of an imminent turnaround.

Company	Net Sales	Net Sales Chg	Same-Store Sales Chg
BJ’s Wholesale	$722.6 Million	-6.3%	-9.1%
Costco	$5.41 Billion	-5.0%	-7.0%
Duckwall-ALCO	$33.0 Million	-3.2%	-4.3%
Fred’s	$124.4 Million	-4.0%	-4.6%
Ross Stores	$538 Million	8.0%	4.0%
Target	$4.418 Billion	-3.2%	-6.5%
TJX Companies	$1.42 Billion	5.0%	4.0%

Drug Stores:

Total net sales were $7.186 Billion for the month, an increase of 4.5% from a year ago, while comparable same-store sales were up 1.3%. This sector is once again an out-performer for the month, driven mostly by robust pharmacy demand, as front-end sales continue to be relatively soft. That could change, however, with back-to-school season providing the stimulus. The National Retail Federation said they expect 18% more shoppers to visit drug stores this year than last year, as they have both the price point and convenience factor to lure frugal shoppers.

Company	Net Sales	Net Sales Chg	Same-Store Sales Chg
Rite Aid	$1.929 Billion	-2.3%	-0.6%
Walgreen	$5.257 Billion	7.3%	2.0%

Comments

[Robert Mart...:]

Thanks for the article.

The retail data point to a continued downshift by the U.S. consumer: Department stores are losing most, while discount retailers are gaining share. Only drug stores are showing positive growth, due to the defensive nature of their products (and a secular rise in pharma costs).

As you noted, inventory reduction and cost-cutting will only go so far. This is a logical response by the retailers, and it mirrors THE driving force behind positive 2Q "surprises". These will soon dry up, however, unless we see postive same-store growth. As the retail pie shrinks, the discounters will win. I predict that we are seeing a secular move down-market, which will benefit the Wal-Marts of the world over Saks and Dillards.

Aug 07 10:36 AM

[Tony Petroski:]

Agree, thanks for the article.

"Retailers continue to be up against tough comparisons from last year when shoppers had stimulus checks to spend."

The phrase above has become a commonplace, but it's not matched in your charts above. The 2008 "stimulus" was a bust. Where's the bottom in retail?

Aug 07 11:04 AM

[markfl:]

"Most retailers have lean inventories prepared for back-to-school shoppers, and are willing to run out of merchandise rather than be forced into steep markdowns. Expectations for back-to-school season are extremely low, so the hope is that the Holiday season can save the day."

I'm interested to know if this "hope" is only that, or whether retailers actually have that expectation. What are their plans for Halloween and Thanksgiving inventory? Any plans at all for holiday/temp hiring, or will they try to squeeze the requisite productivity out of their existing staff?

Right now I view the economy as treading water, and it could easily stall without consumer participation. I see December and January as being two critical periods for the economy to pass through before we can really know if the recession has abated. You'll not get much inventory rebuilding as a contributor to GDP growth if retailers don't want the inventory. I've looked for, and not seen, reports from trucking companies that they are expecting a big uptick in Q4.

Aug 07 01:06 PM

[437339:]

RE

Re the consumer : In a very affluent North metro Atlanta area , The ONLY stores that are " jam packed " continuously are the Goodwill stores . New ones have recently been added to the marketplace with parking lots full to the street on most days . The consumer is DONE , Finito . No amount of spin is going to change this !

Aug 07 04:26 PM

[BlueOkie:]

Great Article! Good breakout that is easy to read.

Aug 08 11:42 AM

[secmaven:]

Kohl's is winning this battle. What a survivor!

Aug 08 01:01 PM

[Mark Bern:]

In the end the real winner will be Walmart. Kohl's is going to grow and take market share, but not to the same extent as Walmart. The Goodwill store is doing very well locally in Virginia, but the Walmart hasn't lost a hitch and the parking lot seems fuller than ever before.

The consumer is not dead, he/she has been reborn by a taste of reality. Consumer habits, for a large cross-section of the population will remain frugal for many years as they (we) struggle to deleverage and prepare for the future. It hasn't affected just the baby boomers; it has reached down to their children who have lost jobs and moved back in with Mom and Dad temporarily after losing the home or being unable to pay rent. The problem is real and it's not going away. More and more people are understanding this reality and adjusting their spending habits more and more. And many of those adjustments will remain with us because the recovery, when it really does begin, will not be robust or create millions of jobs. The pain will linger and leave an indellible imprint on American society for another generation. Then there is the national debt to be paid which will create another major drag on the economy for decades.

I'm usually a very optimistic kind of guy. But when I look at the reality of the future prospects that we, as a nation, are facing I just can't get too excited. Now, in the end, our way of life will endure. The systems is the best that's been created throughout history and it is very resilient. Everything will be okay eventually. But, this time, eventually will take a while to get here.

Good luck to all and keep your powder dry because in every period of great calamity will be found some of the best opportunities in history! You know, the old "silver lining" thingy.

Aug 08 03:00 PM

[Anthony Alfidi:]

Retailers will hurt for a long time as consumers rebuild their savings. Surviving chains will be those with dominating market position and little debt.

Aug 09 03:08 AM

[TheCaptain:]

Retail was in trouble before the recession started and will be in trouble after. Fashion is not like it used to be....gone are the days when loyalty was to one store/designer and gone are the days in which one "look" really ruled. Retailers counted on those two things to make sales. The latest look would be the new and exciting floor set and stores could look to their regulars to come in and buy. Fashion is what will continue to drive retail. Stores MUST have the coolest, most desirable items. Right now you can walk into names and find the same items at each place. This then makes it the "whoever has it the cheapest will win the sale" game. If anything, the recession is weeding out names that don't need to be in the business. The playing field has gotten too level within retail-it needs to be cleaned out.

Aug 10 04:08 PM

[DerekNJND:]

Well, lets be clear. Walmart will be a winner as a COMPANY, but the stock? Eh, not so sure there. I've been bearish on Walmart since the surge off of March lows, simply because its not a recovery play. Keep in mind, a stock market recovery and how recovery stocks or recession stocks are valued or devalued is always ahead of the "real" world economy. I'm not implying our recession is over, in fact, the more who join the camp, the less comfortable I am owning my stocks :) But the problem with Walmart THE STOCK is that the street had a recession type stock market priced into Walmart back in March. But yet many "pros" were still very bullish on the stock, when to me that seemed contrary if the market was beginning to favor higher beta recovery plays. Anyhow, most pros and analysts have spent the past quarter realizing my view and aren't jumping into Walmart ahead of earnings or even heavily at any point. I think its still too high, and its gotta come down before investors will sacrifice chances at higher % gains elsewhere for a safer stock that trades like a cable company or public utility.

Also, - beware the quarter!! I've been fading the "trade down' theory, mainly because I live in a part of the country where people ARE NOT trading down, they're not losing jobs hands over feet and home prices are still high. Obviously thats not the case everywhere, but I think analysts forecasts are assuming a mass exodus from higher end retailers, restaurants, and other cyclical goods that we just are not seeing in earnings reports. My first play on this theory was Starbucks. I equate the threat of "McCafe" to Starbucks to the trade down theory favoring Walmart over other retailers. Starbucks? blew the quarter away while most analysts said not to touch it. I bought at $13 and sold at $18 only days later. Mcafe? eek. Again, I traded Whole Foods into earnings on the same theory--jackpot. We're just not seeing consumers scale out of higher priced stores and goods like analysts forecasted. That hurts Walmart because valuations have that "flight FROM quality" priced in, when I think we've actually seen a flight TO quality if you look at Starbucks or Whole Foods.

So undoubtedly many middle class Americans wil shop at Walmart for goods they used to buy elsewhere. But upper-middle class and upper class aren't abandoning SAKS to buy Walmart jeans or avoiding the Cheesecake Factory to eat Walmart hotdogs.

if anything, Walmart stands to LOSE the most. Why? Because recessions hit the lower middle class and the lower class the hardest. Its always been that way. Why do you think McDonalnds disappointed? Of course, the recesson hits your average american the hardest. Thats the case with Walmart too. Any flight into Walmart is more than offset by Walmarts niche value shopper, their very core segment of the market, having less money to spend or not being employed.


On Aug 08 03:00 PM Mark Bern wrote:

> In the end the real winner will be Walmart. Kohl's is going to grow
> and take market share, but not to the same extent as Walmart. The
> Goodwill store is doing very well locally in Virginia, but the Walmart
> hasn't lost a hitch and the parking lot seems fuller than ever before.
>
>
> The consumer is not dead, he/she has been reborn by a taste of reality.
> Consumer habits, for a large cross-section of the population will
> remain frugal for many years as they (we) struggle to deleverage
> and prepare for the future. It hasn't affected just the baby boomers;
> it has reached down to their children who have lost jobs and moved
> back in with Mom and Dad temporarily after losing the home or being
> unable to pay rent. The problem is real and it's not going away.
> More and more people are understanding this reality and adjusting
> their spending habits more and more. And many of those adjustments
> will remain with us because the recovery, when it really does begin,
> will not be robust or create millions of jobs. The pain will linger
> and leave an indellible imprint on American society for another generation.
> Then there is the national debt to be paid which will create another
> major drag on the economy for decades.
>
> I'm usually a very optimistic kind of guy. But when I look at the
> reality of the future prospects that we, as a nation, are facing
> I just can't get too excited. Now, in the end, our way of life will
> endure. The systems is the best that's been created throughout history
> and it is very resilient. Everything will be okay eventually. But,
> this time, eventually will take a while to get here.
>
> Good luck to all and keep your powder dry because in every period
> of great calamity will be found some of the best opportunities in
> history! You know, the old "silver lining" thingy.

Aug 12 03:31 AM

[DerekNJND:]

Good post, this is why I liken Macys to being a very viable option for consumers who want the higher end goods but wont pay up at a Nordstroms, factory direct or other high end department stores.

Remember, recessions hit the lower end of the economic totem pole the hardest. The wealthy still have money to spend, maybe less, but they're not trading in their Calvin Klein for Walmart jeans, or abandoning fine dining for McDonalds like many analysts will have you believe. BUT they also are not STUPID, thats why they have money, lol. So most will go to a macys and perhaps sacrifice CHOICES among quality names they always wear for a much lower price. The difference is they arent forced to an inferior product, they simply might have less to choose from. But when you're paying 30-50% less than competitors prices, as you will at Macys, often the 10 colors of Polo sweaters Macys has instead of hte 40 choices at Nordstroms is worth paying half price.

I see Macys as a winner, so dont write off all sellers of luxury type goods.


On Aug 10 04:08 PM TheCaptain wrote:

> Retail was in trouble before the recession started and will be in
> trouble after. Fashion is not like it used to be....gone are the
> days when loyalty was to one store/designer and gone are the days
> in which one "look" really ruled. Retailers counted on those two
> things to make sales. The latest look would be the new and exciting
> floor set and stores could look to their regulars to come in and
> buy. Fashion is what will continue to drive retail. Stores MUST
> have the coolest, most desirable items. Right now you can walk into
> names and find the same items at each place. This then makes it
> the "whoever has it the cheapest will win the sale" game. If anything,
> the recession is weeding out names that don't need to be in the business.
> The playing field has gotten too level within retail-it needs to
> be cleaned out.

Aug 12 03:42 AM