Retailers managed to post strong sales results in August, shrugging off the effects of Hurricane Irene, as well as consumers grappling with inflation, stagnant incomes, a volatile stock market and high unemployment.
Total net sales for the 24 retailers that reported (Neiman Marcus & Walgreen have yet to report) increased 7.0% from a year ago to $26.3 billion in August, while same-store sales rose 4.9% on top of a 3.4% gain last year – this was the 24th straight monthly gain after 12 consecutive months of declines, but the smallest increase since March.
16 chains reported comp gains for the month, compared to 17 last August. For the calendar year-to-date period, total sales increased 7.3% to $210.9 billion and comparable store sales rose 5.6% on top of a 4.6% gain in the first 8 months of 2010.
Warehouse Clubs were among the best performers as they were able to lure shoppers making hurricane preparations and buying basic necessities such as batteries and water, while passing on much of their food inflation onto consumers and offsetting any weakness due to closed stores from the storm. Costco (COST) (+11%, +7% ex gas & f/x) and BJ’s Wholesale (BJ) (+11.5%, +7.9% ex gas) continue to be top destinations for convenience-hungry shoppers and have been able to steal market share from other discounters and dollar stores.
High-end chains once again posted solid gains last month as their customers are much more immune from inflationary pressures and can readily absorb significant price increases.Nordstrom (JWN) (+6.7%) and Saks (SKS) (+6.1%) continue to outperform rivals, but recent stock market weakness and plunging confidence among high-earners could derail the momentum heading into the Holiday season.
Specialty retailers were mixed, as those that had strong merchandise offerings and continue to resonate with shoppers have enjoyed healthy back-to-school results, including Limited Brands (LTD) (+11%), The Buckle (BKE) (+8.3%), and Wet Seal (WTSLA) (+5.5%). However, some chains missed the mark with less than compelling offerings, including Gap (GPS) (-6%) and Destination Maternity (DEST) (-5.7%).
Gap CEO Glenn Murphy said the company is “determined to make the necessary adjustments to women’s product and marketing to improve our overall performance and drive top-line growth going forward,” On the Q2 conference call, Murphy admitted to being disappointed with the women’s business and said it’s dragging down total company performance. The marketing campaign in the first half of the year, especially at Old Navy, is also partly to blame for the poor results.
Performance at department stores, which have been expanding market share after nearly a decade of contraction, was also mixed for the month. Gainers were led by Dillard’s (DDS) (+4%) and Macy’s (M) (+5.0%), who can thank surging online sales, which rose 35.5% during August and are up 38.7% year-to-date, for much of its success. Kohl’s (KSS) (-1.9%) and JC Penney (JCP) (+1.9%), however struggled during August and Kohl’s CEO Kevin Mansell said “We are aggressively increasing our marketing as well as sharpening our pricing focus for the remainder of the fall season to reverse this trend.”
Several chains, especially those with heavy exposure to the East Coast, said Hurricane Irene took the wind out of what was shaping up to be a strong month, with the largest impact estimated to be a hit of 1.5% to comps. Others, such as Target (TGT) (+4.1%) and Rite Aid (RAD) (+2.5%), who said the storm was responsible for about 1.5 percentage points of its 2.9% front-end comp gain, benefited from panicked shoppers heading into stores in the calm before the storm.
The monthly report is not what it used to be, with the remaining chains representing roughly 30% of GAFO (General Merchandise, Apparel & Accessories, Furniture and Other – Office Supplies, Stationary & Gifts) sales, but it does provide an early look at back-to-school and early fall demand before the Commerce Dept. releases overall retail sales from last month. The overall theme from this month’s report is that the trend of the strong chains separating themselves from weaker rivals continues.
While recent economic reports suggest there is a strong possibility we could be headed toward another recession, consumer spending has so far held steady. However, nearly every consumer confidence measure fell back to near recession-era lows in August, the stock market dropped for the fourth consecutive month, and real disposable (after-tax, inflation-adjusted) incomes are stagnant. With back-to-school shopping out of the way, parents might become more stingy with their wallets until Christmas as the lull between shopping seasons doesn’t give them a reason to splurge.
Commenting on the fact that the Bloomberg Consumer Comfort Index this morning showed sentiment about the U.S. economy slumped to the second-lowest level in two years, but consumers spent in July at the fastest clip in 5 months, Bloomberg senior economist Joseph Brusuelas said ”The decline in consumer sentiment will likely curb the appetite of consumers to continue spending at levels observed in July.”
Retailers will step up promotions for last-minute back-to-school shoppers, clearing merchandise to make room for fall and winter offerings. Companies are being extremely cautious with inventories heading into the holiday season and the 3rd quarter will be telling as far as whether consumers will begin to cut back on spending due to recent economic weakness, and whether chains will be able to further pass through price increases.