Early Sales Release Thoughts – October 2010

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 |  Includes: ANF, BJ, BONT, COST, FRED, GPS, JCP, SKS, SMRT, ZUMZ
by: Retail Geeks

  • Retailers reporting monthly sales numbers generally missed expectations. Most retailers reported comp store sales results in October 2010 that were materially lower than September 2010.
  • Many retailers blamed the weather for weaker sales the first two weeks of the fiscal month. Many retailers suggested that comp store sales materially improved in the last two weeks of the fiscal month.

But, let’s be honest. Looking back on October 2009, you’ll find an exact opposite weather pattern (favorable weather the first half of the month and unfavorable weather the second half of the month).

Therefore, an argument could be made that weather had no impact in October 2010 versus LY. How so? Since the favorability/un-favorability of the four fiscal weeks simply flip-flopped this year, there was no weather un-favorability in October 2010 versus LY.

It’s probable that retailers using weather as an excuse for weak sales in October 2010 may only be fooling themselves.

  • A few retailers tried to suggest that the stronger top-line trend at the end of the month bodes well for Holiday 2010 selling. But, given the weather reversal this year versus LY, don’t believe that hype.
  • Other excuses in the month included the Halloween shift (NASDAQ:FRED). Yet, BJ suggested a top-line boost via the Halloween shift this year versus LY.
  • COST disclosed Food/Sundries inflation of +50 Bps versus LY and Fresh Food inflation of +200 Bps versus LY.

This follows the prior disclosure re: food inflation in September 2010 on its quarterly earnings conference call:

Regarding inflation, while up to July and August most commodities were not very inflationary year-over-year, a little bit in June and July compared to a year ago. But, in the past two months we have seen big increases on various items. Corn and wheat are up 43% and 37%, respectively year-over-year. That of course down the food chain will affect your proteins, your beef, your pork, and your poultry. Hogs were up 69%, cattle up 16% so far. Sugar is up 52%, butter is up 35%. The only main commodity that showed some negative deflation was cocoa down about 9%.

Talking to our buyers, their feeling is while these high levels of inflation should subside a bit, still expecting some inflationary pressures to many of the food items over the next several months in part because of what I just mentioned.

  • While comp store sales were relatively strong in October 2010, GPS reported a -1% traffic decline at the core chain in October 2010 versus LY. Old Navy reported a -1% traffic decline in October 2010 versus LY. Conversely, many other retailers continue to disclose higher traffic counts than LY.

Just as perplexing, Old Navy suggests that outerwear and sweaters were the strongest product categories. Essentially every other retailer complained about warmer than normal weather during the month negatively impacting these categories.

  • Our Compology this month is measuring relative top-line strength/weakness by comparing October 2010 comp store sales versus September 2010.

The following retailers reported a relatively stronger comp store sales result in October 2010 versus September 2010 (relative strength/improving trend):
ZUMZ
(+4.5% improvement in October 2010 versus September 2010)
GPS (+4.0% improvement in October 2010 versus September 2010)
BJ (+2.2% improvement in October 2010 versus September 2010)
SKS (+1.6% improvement in October 2010 versus September 2010 – event shift?)

The following retailers reported a relatively weaker comp store sales result in October 2010 versus September 2010 (relative weakness/decelerating trend):
ANF
(-11.0% decline in October 2010 versus September 2010)
BONT (-10.0% decline in October 2010 versus September 2010)
JCP (-7.0% decline in October 2010 versus September 2010)
SMRT (-6.9% decline in October 2010 versus September 2010)

  • Looking Ahead by Looking Back… What happened in November 2009?
    In November 2009, most retailer missed consensus comp store sales expectations. The weakest performance was in children’s apparel and outerwear.

Despite the top-line weakness, retailers generally reported material merchandise margin improvements versus the prior year.

Week #4 was generally considered to be the strongest fiscal week in November 2009. Week #3 was generally held to be the weakest fiscal week in November 2009.

The West and Southwest were generally held to be the strongest comp store sales regions in November 2009. The South was generally held to be the weakest comp store sales region in November 2009.

Disclosure: No positions