U.S. retailers once again posted a mixed bag of same-store sales in June. The month started out strong, owing to the shift of Memorial Day shopping into this reporting period. However, trends softened in the second and third weeks. A shift in Memorial Day benefited many companies but BJ’s Wholesale Club Inc. (BJ), Costco Wholesale Corporation (COST); however, missed expectations as its stores are closed on Memorial Day.
June sales for some companies benefited from various promotional measures undertaken in an effort to regain lost market share. But as the companies head into the back-to-school shopping season, these very promotional measures may prove to be a boomerang, imposing downward pressure on margins.
Another factor that affected retailers during the month was high unemployment rates. The unemployment rate for teenagers stood at 26% in June, which hampered their spending pattern. Until the employment picture for this demographic improves, the companies should continue with aggressive promotions to drive sales.
Abercrombie & Fitch Co.
Amid the lackluster June performance from many retailers, one of the real standouts was Abercrombie & Fitch Co. (ANF). Abercrombie reported a solid 9.0% growth in comparable store sales in the month. However, this came at the expense of somewhat eroded margins, as the company relied heavily on promotional strategies to order to boost sales.
Impressive trends in the direct business and benefit from the opening of international flagship stores led to the robust international sales growth of 88.0% over the prior month to $49.4 million, while domestic net sales increased 14.0%. This bolstered total net sales by 23.0% in the month. Total net sales came in at $277.3 million compared with $225.9 million in the prior-year period.
Same-store sales growth at Abercrombie & Fitch, abercrombie kids and Hollister of 10.0%, 14.0% and 7.0%, respectively, drove the overall comparable store sales growth.
Gap, Inc.
One of the bigger disappointments in June was Gap Inc. (GPS), which reported flat same-store sales in the month, as results of Old Navy and Gap International both came in flat. The Gap’s aggressive use of promotions, both in-store and online, failed to drive traffic, which declined in almost all segments. Total net sales came in at $1.31 billion compared with net sales of $1.29 billion in the year-ago month.
The Gap, which also operates the Banana Republic as well as Gap stores, delivered same-store sales of negative 3% in Gap North America and positive 6% in Banana Republic.
American Eagle Outfitters
Another company which reported lackluster performance in the month was American Eagle Outfitters, Inc. (AEO). The company recorded a decline in June comparable store sales of 1.0%. The month began on an impressive note attributable to the Memorial Day shift in the reporting period but started showing weaker trends in the subsequent weeks.
The company needed deeper promotions to clear out summer merchandise, resulting in a low double-digit decrease in average unit retail. However, American Eagle was able to clear its summer merchandise in time for its first back-to-school floorset, which was set earlier this week.
Net sales for the month surged 1.0% to $249.0 million compared with $246 million in the year-ago month. Unit sales increased approximately 15%-17% and transactions jumped 1%-3%.
American Eagle pointed out that promotions, while aiding sales, may come at the cost of lower income. This will in turn lead to earnings per share for the second quarter at the low end of the company’s guidance range of 12-16 cents a share.
On the whole, the improving U.S. economic scene, some early tentative signs of a turnaround in the labor market and pent-up demand held down by the recession have come together to perk up the retailers. However, recovery still remains fragile and requires a boost from a sustained and significant improvement in job creation and income growth. In the end, it will be the turnaround in the jobs and income picture that will outweigh other drags.
Read the full analyst report on “AEO”
Read the full analyst report on “GPS”
Read the full analyst report on “ANF”
Read the full analyst report on “BJ”
Read the full analyst report on “COST”
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