Retailers Get Last-Minute Gift: December Sales Rise
Consumers at the last minute tied a bow on the holiday shopping season, giving the retail industry decent gains in December.
Sales at established chain stores were up 4.2% from the same month a year earlier, according to a closely watched tally of 77 merchants that was released Thursday. In December 2002, by contrast, sales rose a wimpy 1% from a year earlier.
“It’s a sigh of relief,” said Michael P. Niemira, chief economist and research director for the International Council of Shopping Centers, which compiled the results. For the industry, “the sales finally came through.”
For San Francisco-based Gap Inc., however, they hardly came through at all. The nation’s largest specialty apparel retailer, which has been undergoing a turnaround, said that same-store sales in December rose a mere 1%.
In December 2002, Gap’s year-over-year boost was 5%. And analysts on average had expected the parent of 4,200 Gap, Old Navy and Banana Republic stores to report a same-store sales increase this past December of 5.1%, according to a poll by Thomson First Call.
Investors promptly knocked 13% off the price of Gap’s stock, which closed at $20, down $3, on the New York Stock Exchange.
The Morgan Stanley retail stock index of 38 leading retailers dipped 62 cents Thursday to close at $120.97. The leading movers on the index were American Eagle Outfitters Inc., Dollar General Corp. in Goodlettsville, Tenn., and Seattle-based Nordstrom Inc. The laggards were Gap, Wisconsin-based department store Kohl’s Corp. and City of Commerce-based 99 Cents Only Stores Inc.
At namesake Gap stores, the holiday season started strong in November as customers responded to brightly colored merchandise, especially advertised items. But that momentum diminished in December, when customer visits to Gap stores dropped 6% from a year earlier. For all of December, same-store sales at Gap stores were flat, although the company’s Banana Republic and Old Navy divisions climbed 10% and 9%, respectively.
Several other companies with headquarters in California, including Sharper Image Corp., Hot Topic Inc., Guess Inc. and Pacific Sunwear of California Inc., logged some of the most impressive gains in December, a pivotal month for retailers. In 2002, the industry rang up 13% of the full year’s revenues in the month.
Collectively, the industry’s comparable-store sales rose 4% for November and December 2003 combined, making it the best holiday shopping season for retailers since 1999. Comparable, or same-store, sales are a key measure of a merchant’s financial fitness because they include only stores open at least a year.
“We’ve had three pretty miserable years in between, and we really haven’t made it all up yet,” said Scott Hoyt, an economist with Economy.com.
If the December results looked good only by comparison with recent years, they looked downright rosy when adjusted for the deflation that has gripped the industry in recent years, Niemira said. Real spending grew 6.5% for the season, he said, in the strongest advance since 1983.
Deflation and heavy promotions make it harder for retailers to boost profits. Again in 2003, many merchants ended up cutting prices more than they had hoped, though not to the same degree as in 2002.
In the first two weeks of December, major storms on the East Coast kept shoppers home and hurt retailers’ revenue stream. But sales bounced back in the third week, gathering steam as Christmas approached. There was another surge immediately after Christmas as shoppers, many armed with gift cards, descended on stores.
Some companies were under pressure from the start to mark down their goods. Wayne, N.J.-based Toys R Us Inc. said its December same-store sales slipped 4.9% as it battled against Wal-Mart Stores Inc., the world’s biggest retailer.
“The 2003 holiday selling season proved to be extremely difficult, and, like many retailers, we were challenged by an intense promotional environment,” Toys R Us Chief Executive John Eyler said.
Bentonville, Ark.-based Wal-Mart, meanwhile, logged a 4.3% increase, hitting the middle of its forecast range of 3% to 5%.
Overall, warehouse clubs led the industry by collectively advancing a solid 8.6%. Issaquah, Wash.-based Costco Wholesale Corp., which has gained an advantage from the California grocery clerks strike, led the segment by logging an 11% increase.
Throughout the industry, results were starkly mixed, sometimes within the same company. Target Corp., based in Minneapolis, rose 4.1% as its namesake chain advanced 5.6% and its Hayward, Calif.-based Mervyn’s unit fell 7.3%, considerably more than expected. It was Mervyn’s 27th consecutive monthly same-store sales decline.
On the higher end, Nordstrom and Dallas-based Neiman Marcus Group sailed past expectations, posting gains of 14.8% and 9.1%, respectively, as consumers energized by an improved economy and stock market spent more freely.
This so-called wealth effect also rubbed off on San Francisco-based Sharper Image, which posted a hefty 20.1% increase in same-store sales as shoppers snapped up its massage chairs, air purifiers and other gadgets.
As they did in 2002, local teen apparel sellers helped lead the pack. Anaheim-based PacSun’s same-store sales jumped 12%, while Industry-based Hot Topic’s rose 10.1% for the month, twice what analysts had expected.
Both retailers boosted their earnings expectations for the current quarter and the year.
PacSun, which sells surf and skate clothes in its namesake stores and hip-hop styles in its d.e.m.o. chain, also said it now planned to open 10 more d.e.m.o. stores than previously expected this fiscal year.
Another star of late, Los Angeles-based Guess said same-store sales rose 13.1%.
On the other hand, Foothill Ranch-based Wet Seal Inc.’s same-store sales fell well below analysts’ expectations, declining 7.3%, prompting the company to cut fiscal fourth-quarter earnings expectations.
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Holiday wrap-up
December same-store sales* were a mixed bag. A sampling:
*--* Store Pctg. Change Guess +13.1% Costco Wholesale +11.0% Nordstrom +9.1% Wal-Mart +4.3% Target +4.1% Ross Stores +4.0% Federated Dept. Stores +1.2% Gap +1.0% Sears -0.8% Kohl’s -1.2% Wet Seal -7.3%
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*Sales from stores open at least a year. Reporting periods vary slightly.
Source: Company reports
