Retailers' January Numbers Show Light at the End of the Tunnel
"Despite lean clearance inventories and some adverse weather that held back sales in January, industry sales posted an impressive gain," said Michael P. Niemira, chief economist of the International Council of Shopping Centers. He singled out apparel chains, which had their best showing since March 2007.
Most merchants reported increases in January and during the quarter ending Jan. 31, although in many cases, it wasn't enough to turn around sales for the year. Retailers make their year's profits during the fiscal fourth quarter, which most companies close at the end of January, to include the post-holiday clearance sales. But most retailers reported that their inventories were down significantly this January, along with discounting. With fewer markdowns, even modest sales growth translates quickly into increased profits.
J.C. Penney (JCP) blamed lower January sales on a shortage of clearance merchandise, and noted that sales of regular and normal promotional-priced items were up by high single-digit percentages. The department store chain's same-store sales were down 4.8% in January, 3.6% for the quarter, and 5% for the year.
Meanwhile, rival Kohl's (KSS) reported its same-store sales were up 6.5% in January, 4.5% for the quarter and 0.4% for 2009, which led the company to raise its earnings guidance. Kohl's now expects to report earnings of $1.36 to $1.37 per share for the fourth quarter, up from its previous forecast of $1.28 to $1.30.
Signs of a Rebound for Some Big Name Stores
The department store segment is looking up, after several years of suffering. Macy's (M), also raised its guidance after posting better-than-expected sales. The parent of Macy's and Bloomingdale's reported same-store sales rose 3.4% in January and fell 0.8% for the fourth quarter, better than the drop of 1% to 2% it had expected. That led the company to raise its earnings guidance to $1.35 to $1.37 per share for the fourth quarter, up from its previously forecast range of $1.14 to $1.18, and raised its expectation for the fiscal year to $1.36 to $1.38, instead of $1.15 to $1.19.
In the luxury segment, Saks (SKS), another retailer that had taken a beating in the recession, also showed signs of a turnaround. It reported a 7% increase in same-store sales in January, though it was down 4.8% for the quarter and 14.7% for the year. Rival Nordstrom (JWN) had a 14% increase in same-store sales in January, and its full-price stores showed renewed strength. While its Rack discount stores had been driving sales growth during the recession, they posted a 5.3% same-store growth in January, compared to 8.9% for the full-line Nordstrom stores.
Both Nordstrom and Saks had fought against the drop in luxury sales by pushing down some of the prices for designer apparel, but Nordstrom had been more aggressive than Saks in stocking more moderate items, and had seen better sales over the past year. The luxury market appears to be perking up this year, thanks to the improvement on Wall Street -- as witnessed by better than expected results at Tiffany & Co. (TIF), Burberry Group (BURBY) and Coach (COH) -- which bodes well for the high-end department stores.
Discounters Lost Some Yardage in Super Bowl Shift
But consumers remain cautious discount shoppers, as seen in the results for warehouse clubs and discounters. Both Costco Wholesale (COST) and rival BJ's Wholesale Club (BJ) posted gains thanks to rising gas prices; that helped them overcome the shift of the Super Bowl to February, which cost them in sales of food and TV's. Costco's comparable sales were up 8% for the month, while BJ's was up 8.4%; Costco estimated the Super Bowl move cost it between 0.5 and 1 percentage point in sales gains, while BJ's put the drag at 2 percentage points. On the plus side, the warehouse clubs are seeing less deflation in food prices, which has been a continuing problem over the last year; Costco's management estimated that price deflation has shrunk to less than 1% in some food categories.
Target (TGT) also said its electronics department suffered from this year's Super Bowl shift, but noted that food sales remain strong. The company said it expects same-store sales in February to be flat or up slightly. Total January same-store sales were up 0.5%, which the company said was due to lower clearance sales than last year, and sales for the quarter were up 0.6% but where down 2.9% for the year. CEO Gregg Steinhafel said in a statement that the company is bound to improve in 2010, since it's showing higher comparable sales in apparel and home -- two segments where Target has set itself apart from other discounters.
Retailers will have to continue to focus on wringing profits from modest sales, because consumers remain very tight with their shopping budgets. According to a poll by consulting firm Retail Forward, the number of consumers who say they feel worse off about their household income now as compared with a year ago has risen: 32% said so in January 2010, compared to 27% in January 2009. Likewise, fewer feel they're better off (25% in 2010 versus 30% in 2009).
"The modest pickup in retail spending is persisting despite challenges ranging from income constraints to bad weather," said Retail Forward's senior economist, Frank Badillo. "The recovery should continue on an uneven path as shoppers slowly resume spending that was postponed or reduced during the recession as a precaution."
But the survey also found households felt more secure in the value of their homes and investments, more had a handle on credit card and mortgage payments, and job security was edging upward. All these bode well for retail's recovery later in the year, although Valentine's Day, the next big shopping holiday, appears poised to disappoint. The ICSC's Niemira is forecasting February sales will be up a modest 2% above last year's.
Specialty Retailers See Quarterly Rises
In fact, Limited Brands (LTD) expects flat sales in February, despite promotional activity at both its Victoria's Secret and Bath & Body Works chains. Limited's same-store sales were up 6% in January, thanks to a 17% increase at Victoria's Secret from shifting its semi-annual sale to January; that offset an 8% drop at Bath & Body Works, which cut back its semi-annual sale by eight days to match its lower inventories. Company same-store sales were up 1% for the quarter, but down 4% for the year.
Other specialty apparel retailers also saw healthy increases. Gap (GPS) which showed a 5% increase in same-store sales in January, boasted it posted gains at all its chains for the third month in a row. Old Navy had an increase of 10%, Gap was up 2% at Gap and Banana Republic rose 4%. Total same-store sales were up 2% for the quarter, but are still down 3% for the year.
Aeropostale (ARO), which posted a same-store sales increase of 6% for the month, 9% for the quarter and 10% for the year, upped its earnings guidance to reflect the better sales. It now expects fourth-quarter earnings of $1.41 to $1.42, up from $1.33 to $1.34 per share, a 40% to 41% increase over last year's earnings.
Even Abercrombie & Fitch (ANF), whose sales had taken a beating this past year, posted an 8% increase in same-store sales in January, led by a 12% increase at its flagship brand. Abercrombie, which had been punished over the last year for moving too slowly to lower prices, was helped by redemptions of gift cards it gave away as part of a holiday promotion. However, same-store sales were still down 13% for the quarter and 23% for the year.
Compared to January 2009, It's Easy To Look Good
So the rising tide does appear to be lifting all boats -- slowly. Some of the improvement in January is no doubt a result of cycling through the anniversary of devastating post-holiday clearances in 2009 that followed an equally damaging round of holiday markdowns among merchants caught overstocked in a recession. Niemira noted that sales were down 4.8% in January 2009, making this an easy comparison.
A fuller picture will emerge when the Commerce Department releases full January retail sales statistics Feb. 11, which will include auto and gas sales, restaurant receipts and sales at Wal-Mart (WMT), which does not report monthly figures.