2nd UPDATE: Retailers Show Surprising Strength In August Sales
September 02 2010 - 10:15AM
Dow Jones News
Retailers delivered a late-summer surprise, with sales for the
key back-to-school buying month of August coming in better than
expected.
All retail categories produced sales that were ahead of muted
expectations, including department stores and teen retailers that
are among the most vulnerable to spending pullbacks. Sales at
stores open more than a year, a key gauge of retail demand, rose
3.3%, when a 2.5% rise was projected by analysts surveyed by
Thomson Reuters. The showing follows a 2.9% drop a year ago and a
2.7% rise in July.
While sales are stronger, they remain below pre-recession
levels.
"We continue to see weak to modest growth, and it's hard to be
optimistic," said Mike Berry, director of industry research for the
SpendingPulse unit of MasterCard Inc. (MA). "We're still running at
levels well below two years ago pretty much across the board."
Two-thirds of the 30 retailers that report same-store sales beat
expectations, with mass merchants and apparel retailers doing so by
the widest margins.
"No matter how the economy is doing, back-to-school [shopping]
occurs each year and parents are budgeted for it," said Jahronne
Martis, retail analyst at Thomson Reuters. "The last week of August
was particularly strong."
The showing makes for a solid start to retailers' third quarter,
which for most begins in August. But retailers were very
promotional during the month, which could eat into their margins
and bottom lines.
Also, while the monthly figures are on a par with those posted
in the beginning of the year when people were starting to feel good
about the economy, retailers face more of an uphill climb in
September. They will be facing comparisons against positive
same-store sales results for the first time in a year.
Among department stores, Kohl's Corp. (KSS), J.C. Penney Co.
(JCP) and Macy's Inc. (M) all beat expectations, and the latter two
said back-to-school sales were going well. Macy's did sound a note
of caution, with Chief Executive Terry Lundgren saying the company
"continues to watch economic trends carefully."
Two major upscale department stores took divergent tacks last
month, as a rocky stock market created jitters among the affluent.
Nordstrom Inc. (JWN) posted a 6.3% rise in comparable-store sales,
ahead of projections for 5.9%. Saks Inc. (SKS) reported a 1% rise
when 4.3% was expected.
The big teen retailers fought a heavy battle of promotions
during the month, and Abercrombie & Fitch Co. (ANF) appears to
have been one of the victors. The company's same-store sales rose
6%, when a 5.9% advance was expected by analysts. The showing
compares with a 29% drop last year, when Abercrombie was holding on
to its "no discounts" strategy.
Aeropostale Inc.'s (ARO) same-store-sales fell 1% for the month,
compared with expectations for a 1.2% rise and a 9% gain a year
ago. The company said it "experienced stronger results in its peak
back-to-school regions, reflecting a customer that is shopping
closer to need."
American Eagle Outfitters Inc. (AEO) reported a 1%
comparable-store sales gain when analysts' projected a 1.1% rise,
and backed its earnings view for the current quarter.
Mass merchant Target (TGT), however, missed August same-store
sales expectations, posting a 1.8% gain, when analysts were
expecting 2%. The mass merchandiser was nonetheless upbeat, saying
customer traffic was healthy throughout the month and that the
August showing was in line with its own expectations. Target had
"the double whammy" of very warm weather during the month and a
limited amount of summer wear still in stock, said J.P. Morgan
retail analyst Charles Grom.
Costco Wholesale Corp. (COST) posted a 5% rise in same-store
sales when a 3.6% gain was expected. The warehouse club did even
better when factoring in higher prices at its gas pumps and gains
from stronger foreign currencies. On that basis, same-store sales
rose 7% when analysts were looking for 4.2%. The retailer's
international operations were up 11%, compared with a 6% rise in
the U.S.
Feelings of some despair helped retailers pull off a
better-than-projected showing, analysts said. "Things have been so
poor in terms of the economy and even the stock market, and that
really pulled expectations down," said Stephen Hoch, marketing
professor at the University of Pennsylvania's Wharton School.
"Also, last year was a very bad year, so that makes the numbers
look that much better."
In essence, "We're treading water on the retail front, and it
was thought that we couldn't even do that," Hoch said.
A number of factors led to muted expectations for August.
Shoppers received a spate of poor economic news during the month,
weathered extremely hot temperatures that took their minds off of
the autumn school start, and knew they had an extra week to wait
for sales because Labor Day falls later in September this year.
Retail stocks are rising on the reports, with the Standard &
Poor's Retail Index recently up 1.7% to 415.55.
-By Karen Talley, Dow Jones Newswires; 212-416-2196;
karen.talley@dowjones.com
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