Apparel retailers outshine all others in August same store sales
Aggressive promotions by retailers to draw customers into stores seem to have paid off. July same stores sales figures had already given a fair indication that we could expect good sales in August and the "Back to School" season (typically spanning August and September). Retail Metrics, which tracks 20 companies, said that same store sales were 5.9% on average for the 20 companies, excluding drugstores, as compared to an estimate of 4.2%. Same store sales in July were 4.4%. The August performance bodes well for the coming holiday season, as it shows that consumers are willing to spend. Apparel retailers were the best performers in August same store sales, followed by discount and department stores. Teen apparel performed the worst.
Cost co. (COST), which operates membership warehouses, reported comparable store sales of 6%, excluding the effect of gas and foreign. This is 1.5 percentage points higher than analyst estimates of 4.5%. In 2011, same store sales for August were the same 7%.
Target (TGT) had August same store sales of 4.2% as compared to analyst estimates of 3.1%. Last year, there was a gain of 4.1%. The sales were driven by food, followed by beauty and health products. The stock is almost trading at its 52-week high value. The company had raised its guidance for the full year, above analyst estimates ($4.65-4.85/share above analyst estimates of $4.3/share). We are bullish on TGT based on its off-price model driving sales and expansion plans. It has a dividend yield of 2.3%. For details on TGT, read our article.
Nordstrom (JWN) and Saks (SKS) are high end chains that have a relatively stable customer base, as they target high income customers who are less affected by economic conditions. This is reflected in continuous outperformance of Nordstrom with same store sales of 0.9% and 21% as compared to analyst estimates of -2.7% and 11% over the last two months (July and August) respectively. The large jump in August sales is also due to the annual anniversary sale event shifting to August (8 days in August). The August 2011 same store sales figure was 6.7%.
Saks, which does not report same store sales any longer, is up 10% over a month's period, mainly because it reaffirmed its mid-single digit guidance of same store sales for the second half of the year. it faces tough competition from the likes of Macy (M), Kohl's (KSS) and J.C. Penney (JCP).
Macy's same store sales were 5.1%; analysts had expected 3.3%, while last year's result was 5%. Sales were up across all categories. Online sales were a primary driver of growth (37.4%). With the growing trend towards online shopping, especially during the Back to School season, according to the National Retail Federation, Macy is set to benefit from this key metric (online sales) in the future as well.
Kohl's, a mid-tier department store, has faced significant pressure due to the economic conditions. Customers either go for discount stores for discretionary spending, or move up to higher-end stores to get more value. KSS reported same store sales of 3.4%, beating analyst estimates of 1.9% and last year's result of -1.9%. Based on the present economic uncertainty, we do not recommend buying KSS at the moment. The company has a short ratio of 5.2 days.
Stage Stores (SSI), an operator of department as well as off-price apparel stores, posted a same store gain of 6.5% as compared to estimates of 3%. Last year, there was a decline of 1.7% in August. The growth was largely due to the performance of the women's category, along with more full priced sales.
TJX Companies (TJX) and Ross Stores (ROST) are off-price apparel and home fashion retailers. ROST posted same store sales of 8% in August as compared to 4% last year; analysts had estimated 5.8%. TJX posted 8%, which is more than analyst expectations of 6.3%. Both companies had earlier raised their whole fiscal year's earnings based on the better than expected same store figures. ROST also guided to a conservative 2%-3% same store sales figure in September, and 3%-4% in October. Last year, same store sales were 5% for both months. For more details of our bullish stances on both these companies, read our articles on TJX and ROST.
Gap (GPS), Limited Brands (LTD), Stein Mart (SMRT) and Cato (CATO) are other prominent apparel retailers. Last month, Gap had outperformed analyst estimates the most (10% as opposed to estimates of 3.8%). The company did the same this month, with same store sales of 9% as compared to analyst estimates of 5.4%. Old Navy and North America were the main drivers of growth. Analysts have raised Gap's target price several times, based on its outstanding performance this year. One of the things benefiting Gap and M are the customers that have moved away from J.C. Penney . For more on Gap, read our following article.
Limited Brands, the company behind Victoria's Secret, La Senza, Pink, Bath & Body Works and Henri Bendel, posted same store results that were less than last year's results, but almost twice what analysts had estimated. In August 2012, same store sales were 8% as compared to analyst estimates of 4.2% and same store sales of 11% in 2011.
Stein Mart posted same store sales of 5.6%, above analyst expectations of 1.5%. Cato had flat same store sales, above analyst estimates of a decline of 1%.
Wet Seal (WTSLA), an apparel and accessory retailer for young women, continued to disappoint with -18% same store sales, below the -17% estimate of analysts; although, online sales were up 0.3% for the first time this year. It is the biggest loser in August sales among retailers. In July, the company's same store sales decline stood at 15.6% when analysts had expected -14%. According to the company, this performance was expected, and WTSLA has returned to its core strength of fast fashion merchandising in August. The company is trying to bring about a turnaround.
Overall, same store sales were better than expected, with the apparel retailer performing the best. In July too, apparel retailers had been the best performers.
Companies tracked by Thomson Reuters posted same store sales gain of 3.6%, above expectations of 2%. Back to School sales form a big chunk of the third quarter sales.
The sales were well in line with last year's sales gain at most of the retailers. Retailers can now have higher hopes for the holiday season, given the economic uncertainty. For September, the second half of the Back to School period, The International Council of Shopping Centers gave an estimate of 3%-4% same store sales, excluding drugstores.
The August sales figures support our earlier recommendations for long positions in ROST, GPS, TGT and TJX.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.