Almost every retailer that has reported earnings over the past two weeks (excluding perennial laggards HOTT and PSUN) has suggested that sales picked-up the final two weeks of fiscal October and continued to be strong the first 2-3 weeks of fiscal November. This followed a four week timeframe in mid-September through mid-October when sales were relatively weak.
Will the recent top-line momentum continue into Black Friday weekend and into the holiday period? That’s the $64,000 question.
Many analysts have adopted the “appointment shopping” thesis (stronger comp store sales trends during traditionally heavy traffic periods)? This term became popular when JCP CEO Mike Ullman coined the phrase to provide an excuse for the company’s top-line woes outside of traffic driving holiday sale events. This line of thinking suggests that if sales were so strong over the past 4-5 weeks… just wait until Black Friday when shoppers have a reason to go to the mall.
But, here’s what we know. Generally, over the past 2-3 years, sales trends have exhibited sudden strength/weakness (“start-stop”). Sales have tended to be humming along nicely (today), only to seemingly come to a halt and take a breather for 3-4 weeks?
During periods of strength, investor/analyst enthusiasm builds as folks extrapolate the current trend well into the future. Then, when sales take a breather and fail to meet the recently raised expectations, analysts/investors focused on the retail sector collectively scratch their heads.
Therefore, we’re skeptical of the “appointment shopping” thesis. In addition, we’re not believers that strong sales over the past 4-5 weeks suggest that sales will carry over into Black Friday weekend.
Conversely, we believe in the “start-stop” sales thesis (periods of strong sales relative to expectations driven by pent-up demand and/or favorable weather followed by periods of weak sales).
Let’s take it one step further. It’s possible that the strong top-line momentum over the past 4-5 weeks has only pulled-forward sales from the Black Friday weekend into the first 3 weeks of fiscal November. The fact is that sales in the first three weeks of fiscal November have been weak for the past few years. Did the weather, earlier promotions this year, and easy compares conspire to raise expectations for Black Friday to levels that will be impossible to meet or exceed?
We’ll know this weekend. But, the irrational exuberance of the CEOs on conference calls over the past two weeks may have been another in a series of misplaced extrapolations of relatively strong top-line results into the future.
Happy Holidays from Retail Geeks!
Disclosure: No positions