U.S. retailers in September collectively posted their first
growth in same-store sales since August 2008, with several hopeful
signs reported by an industry mired in an extended slump.
The September showing prompted a number of retailers, including
Target Corp. (TGT), J.C. Penney Co. (JCP) and Kohl's Corp. (KSS) to
issue optimistic earnings outlooks. Meanwhile, Victoria's Secret
parent Limited Inc. (LTD) reported its first same-store-sales
increase since August 2007.
It's too early to say retailers turned the corner, as the
year-to-year comparison benefited from factors including a later
start for many schools and weakness last year, making the ability
to show growth much easier than had been the case throughout 2009.
Retailers have been slow to recover even as other areas of the
economy such as manufacturing and home sales have been showing
signs of improvement. High unemployment and consumer debt are still
clouding the sales outlook, particularly heading into the
all-important holiday-shopping season.
Still, the September results were better than predicted and may
indicate that pent-up demand is being released by consumers after
they hunkered down during one of the worst recessions in
memory.
"Give me a couple more months of improvement and I'll feel
better," said Craig Rowley, head of the retail practice at
consulting firm Hay Group. Nonetheless, he added, "there is some
sentiment on the part of the consumer that the worst of the
economic downturn is over."
The closely watched same-store-sales index calculated by Thomson
Reuters rose 0.6% for September, when a 1.1% decline was expected
for the 30 retailers it tracks. The increase allowed the industry
to avoid what would have been the first time this decade that the
same month had two straight years of same-store sales decline.
Shares of retailers rose on the numbers, with a handful of
stocks hitting 52-week highs. The Standard & Poor's retail
index was up 1.9% in recent trading, with shares of Macy's up 5% at
$19.52 and shares of Limited up 4% at $18.54.
Discounters continued to fare relatively well last month, as
shoppers adjust their habits amid the difficult economic climate.
The September figures also showed that beaten-down segments such as
department stores and teen-apparel chains performed better than
anticipated, though some still showed sizable declines.
Retail executives remained guarded despite the
better-than-expected numbers.
"We're still cautious but we're seeing some encouraging trends,"
said Mike Ullman, chairman and chief executive officer of J.C.
Penney. "Mall traffic is picking up" and the amount of buying when
people are in stores has increased versus a year ago, he noted.
Howard R. Levine, chief executive at Family Dollar Stores Inc.
(FDO), part of the discount group that has held up best during most
of the recession, isn't convinced that a turnaround is occurring.
"It's unclear when we will see (economic) conditions improve," he
said, adding that even when conditions do improve, consumers will
still seek value.
Analysts also warned against calling September the beginning of
a recovery for retailers.
"This very positive news could be setting itself up for
irrational exuberance," said Todd Slater, retail analyst at Lazard
Capital Markets in a research note.
When retailers beat expectations by a large margin in one month,
they usually miss consensus numbers in the following period, "which
simply means that expectations tend to get ahead of themselves
pretty quickly," Slater said.
The September results reflect how retailers have crafted pricing
strategies that at least some consumers are willing to bear. The
question remains how low retailers can go and still maintain decent
profit margins.
Abercrombie & Fitch Co. (ANF), for example, only recently
adopted a promotional approach after being hammered by rivals. The
18% sales decline in September for the teen-apparel company was
better than expected and represented the first time it beat
expectations in five months.
Lower-priced rival Aeropostale Inc. (ARO) saw a 19% increase,
and raised its fiscal third-quarter profit target. American Eagle
Outfitters Inc. (AEO) also projected earnings at or above its prior
forecast.
Department stores also showed improved performance, with Macy's
Inc. (M) posting a 2.3% drop - half of the decline that analysts
estimated - while struggling smaller peer Dillard's Inc. (DDS) also
had a narrower-than-expected decline. J.C. Penney and Kohl's also
topped estimates, helping to prompt their boosted forecasts.
Gap Inc. (GPS) posted a roughly in-line 1% drop. Its
long-struggling Old Navy chain reported surprise growth in August
and posted a stronger-than-expected 13% jump for September - the
biggest monthly gain in five-and-a-half-years. The company said
merchandise margins for the month were "significantly" above
year-earlier levels.
Among discounters, BJ's Wholesale Club Inc. (BJ) on Thursday
posted a 5.5% gain excluding gasoline sales, another month of
outpacing peers but below analysts' expectations. Costco on
Wednesday reported a 3% rise on that basis in the U.S., double
estimates.
Off-price apparel sellers TJX Cos. (TJX) and Ross Stores Inc.
(ROST) have been posting some of the best results of late, and they
had growth of 7% and 8%, respectively, again topping
expectations.
-By Karen Talley, Dow Jones Newswires; 212-416-2196;
karen.talley@dowjones.com
(Kevin Kingsbury and Mary Ellen Lloyd contributed to this
article)