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Most retailers produced same-store sales in May 2011 that were below the combined March/April 2011 average. As we expected, retailers had a difficult time in the second half of the month, lapping a materially improved sales trend in the second half of May 2010.

The many retailers that were excited/pleased about sales trends in the first half of May 2011 (on quarterly earnings conference calls) likely failed to recognize (or acknowledge) that the first two weeks of May 2011 were lapping horrendous weather from a year ago.

Finally, let's remember that week #1 of June 2010 was a strong comp store sales week a year ago. It's likely that retailers are getting off to a slow start in June 2011.

The following retailers explicitly mentioned that sales in May 2011 were below expectations: CATO, DEST, SSI, and TGT.

COST reported that food/sundry inflation was +3% in May 2011, and that the fresh food category experienced inflation in the "low-to-mid single digits." It also noted that computers were a strong sub-category in hardlines. We believe that this reverses a trend versus category weakness in prior months. Also, the company complained about camera supply issues via the recent earthquake/tsunami in Japan. Finally, COST reported that its average retail gas price per gallon increased to $3.86 in May 2011 versus $2.78 last year (+39%).

JCP management should be ashamed of their -1% comp store sales result in May 2011. The company mentions on its monthly sales recording that a home category event shifted to fiscal April this year versus May last year. Did the company mention this last month? We're not completely sure, but unlikely. JCP management can talk about improving the "center core" of the store all they want. But, their comp store sales results in May 2011 are awfully similar to industry laggard BONT and are much weaker than even DDS. Finally, let's remember that JCP reported an EBIT margin decline in Q1 2011 versus the prior year. In contrast, many of their department store peers delivered EBIT margin improvements in the quarter (e.g. KSS, M). It sounds like JCP's apple is "rotten to the core."

Lots of downside EPS risk at JCP.

TGT's monthly sales recording implies that store traffic was flat in May 2011 versus last year. July 2009 was the last month that TGT reported a store traffic decline versus the prior year (we're ignoring the March/April calendar shift months). Not a great sign for a retailer than is theoretically boosting traffic with its RedCard and PFresh remodels.

TJX continues to complain about "cold and rainy weather" in Canada (-4% comp store sales). Keep an eye on retailers with a heavy Canadian exposure.

Our Compology this month is measuring relative top-line strength/weakness by comparing May 2011's comp store sales results to the combined March/April 2011 results. We've calculated an estimate for March/April 2011 if it was not explicitly provided by the company.

Outperformers

  • SKS +11.7% in May 2011 versus March/April 2011
  • M +2.1% in May 2011 versus March/April 2011
  • SMRT +1.3% in May 2011 versus March/April 2011
  • JWN +1.2% in May 2011 versus March/April 2011

Underperformers:

  • LTD -10.7% in May 2011 versus March/April 2011
  • ZUMZ -4.7% in May 2011 versus March/April 2011
  • WTSLA -4.2% in May 2011 versus March/April 2011
  • CATO -4.0% in May 2011 versus March/April 2011

Looking Ahead by Looking Back - What happened in June 2010?

Overall, comp store sales in June 2010 were inflated by the benefit of a fiscal calendar shift (Memorial Day). Also, the month benefited from improved weather versus the prior year (there was no weather commentary in the month).

That said, AEO, FRED, GPS, and WTSLA suggested that comp store sales in June 2010 failed to meet internal expectations. In June 2010, the strongest category performance was in dresses, shoes and air conditioners. Weak categories included televisions and computers.

Week #1 and week #4 were generally considered to be the strongest fiscal weeks in June 2010 (favorable calendar shift in week #1). Week #3 was generally held to be the weakest fiscal week in June 2010.

The Midwest and Southeast were generally held to be the strongest comp store sales regions in June 2010. The South Central was generally held to be the weakest comp store sales region in June 2010.

COST disclosed that the average retail price per gallon of gas in June 2010 was $2.71 (+5% versus $2.59 in May 2009).

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: May Same-Store Sales Disappoint