Retail Sales Increase Is Smallest in 3 Years
Stale fashions, chilly weather and bearish economic factors such as rising gas prices have conspired to dampen apparel sales, prompting a number of major retailers to report disappointing results Thursday.
U.S. retail sales rose 3.4% in June, the smallest increase in almost three years, and some analysts predicted a gradual downturn for the rest of the year. With interest rates rising, consumer debt mounting and the stock market zigzagging, consumers have become more cautious about opening their wallets, analysts say.
“It’s clear that Americans today have finally shed the free-spending habits they’ve had over the last couple of years,” said retail consultant Kurt Barnard, publisher of Barnard’s Weekly Retail Marketing Report. “Today, Americans buy what they need and want [but] they don’t buy on impulse and they don’t buy frivolously.”
The sluggishness was reflected across the retail spectrum, with a number of department stores, mass-merchandise retailers and specialty stores offering less-than-promising numbers. Many companies marked down prices in late June to make way for the important back-to-school season.
Wal-Mart Stores Inc., the world’s largest retailer, and Nordstrom Inc. reported same-store sales below analysts’ expectations in June. Gap Inc. and Pacific Sunwear of California Inc. in Anaheim warned that second quarter profits will fall below analysts’ expectations.
Some apparel stores also suffered because they misjudged shoppers’ tastes, analysts noted.
“Let’s face it, consumers binged for a number of years and a lot of their closets are full,” said Steven Richter, an analyst with Tucker Anthony Cleary Gull. “So there hasn’t been much need if the stores don’t get it right.”
Pacific Sunwear flourished during the strong economic cycle, but sales at established stores have turned sluggish.
If the retailer misses second-quarter earnings as it now predicts, it will be the first time that has happened in 21 quarters. Pacific Sunwear said it expects to earn 23 cents to 25 cents a share for the second quarter, compared to 23 cents a share in the year earlier period. Analysts had predicted 26 cents a share.
Despite the earnings warning, the company’s stock moved up $1.05 a share to $18.44 on Thursday. But that’s still down 42% for the year.
A blast of chilly weather in the Northeast, Midwest and Southeast also contributed to sluggish apparel sales.
“That’s why department stores like Federated, J.C. Penney and May had lackluster sales,” said analyst Brian James of Loomis, Sayles & Co. “Many department-store companies’ (earnings) estimates have to be trimmed by a couple of pennies.”
For Penney, sales fell 2.1% in June, extending a three-year slump.
While many retailers showed disappointing results, there were some notable exceptions.
Sears, Roebuck & Co., for example, said second-quarter earnings would likely beat estimates, although its apparel sales trailed sales a year ago. It was the third straight quarter that Sears has said its earnings would surpass estimates.
The Illinois-based retailer has been wooing shoppers with new marketing and by cutting prices on T-shirts and other basic clothing. Last year, Sears replaced its “Softer Side of Sears” ad campaign for a new slogan, “The Good Life at a Great Price. Guaranteed.”
Upscale department store operator Neiman Marcus Group Inc. said that in the five weeks ended July 1, sales at stores open at least a year rose 17% over sales during the same period last year. Limited Inc., the second largest U.S. clothing retailer, reported June sales were up 6%.
Federated Department Stores Inc., parent of Macy’s and Bloomingdale’s, said sales climbed 5% in June, in line with estimates, but warned of rising delinquencies among credit-card holders at its Fingerhut catalog division. The stock slumped $5.19, or 15%, to $29.63 on the New York Stock Exchange, pushing the Cincinnati retailer’s shares to their lowest level in four years.
Apparel companies that cater to youth have a double burden, battling both the shifting economic climate and the fickle taste of their young customers. And some of them have missed the mark in predicting what teens will want, analysts say.
For example, some young buyers have cooled to the preppy, collegiate styles at Abercrombie & Fitch, and to Hawaiian shirts that were hot at Pacific Sunwear.
“It’s hard to know when a trend is going to peak,” said Elizabeth Pierce, an analyst with Wedbush Morgan Securities. “Next year, you’ll probably see Pacific Sunwear have hardly any Hawaiian print shirts.”
When apparel chains found that clothing wasn’t selling, they cut prices in June to make way for new back-to-school clothes, Pierce said. Retailers opted to “take the markdown and run,” she said.
“No one was going to sacrifice their back-to-school quarter to save the second quarter,” she said. “It’s not a big enough quarter.”
Gas prices have also hurt clothing sales, analysts say. The $20 a shopper might otherwise have spent on a tank top, may now help fill up the gas tank.
“Even kids that have their own income and cars, or use Daddy’s car, suddenly find they have to spend more money on gasoline,” Barnard said.
Analysts were cautious with their predictions about what the spate of financial results say about the trend for the rest of the year. Some pointed out that the results may be skewed because retail sales were surging a year ago.
But Barnard said the fact that Americans have racked up $621 billion on their credit cards--compared with $570 billion last year--is having an impact.
Indeed, same-store retail sales, a key industry indicator, are expected to rise only an average of 3.5% monthly from July to December, compared with a gain of 6.1% in the same period last year, according to Bank of Tokyo-Mitsubishi, which tracks about 76 retailers.
Retail analysts say they also will be keeping an eye on such key economic indicators as housing starts and personal income.
“When those things start to decline, usually consumer spending falls off,” Pierce said. “It’s just a matter of how long and to what degree.”
Bloomberg News contributed to this report.
* PUNISHED ENOUGH?
Some battered retail stocks rallied despite sales news. C6
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Cloudy Outlook
Pacific Sunwear of California’s stock, locked in a three-month slump, moved up Thursday although the Anaheim retailer warned that second-quarter financial results will miss projections. Daily stock trend:
Thursday’s close: $18.44
Source: Bloomberg News
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June Retail Sales
U.S. retail sales rose 3.4% in June, the smallest increase in almost three years, as rising interest rates crimped consumer spending and rainy, cold weather hurt demand for clothing. Dollar amounts in millions:
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June total % change Comp. stores Year-to-date Chain sales from ’99 % change total sales Discount Wal-Mart $17,980 +20.9 % +4.8% $76,560 Kmart 3,570 +0.8 --1.0 14,610 Target 3,160 +6.4 +1.1 13,280 Costco 3,100 +13.0 +9.0 26,090 Department Sears $3,810 +4.7 % +2.3% $16,260 Federated 1,570 -0.3 +0.5 6,940 J.C. Penney 2,860 +2.3 --2.1 12,950 May 1,240 +1.7 --1.4 5,330 Gottschalk’s 50 +9.7 +7.8 213 Apparel Gap $1,170 +19.0% --2.0% $4,830 Limited 923 +6.0 +6.0 3,760 Gymboree 32 --21.0 --23.0 155 Hot Topic 20 +63.0 +25.4 79 Pac. Sunwear 52 +32.5 --0.1 201
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Source: Companies listed
