No August Surprise for Retailers After Expectations Reset

   By Anna Prior 
 

Retailers' difficulties generally persisted in August as shoppers continued to stay away from the mall, though sales were primarily as expected, following a reset of expectations for the second half of the year thanks to a recent slew of downbeat outlooks.

"We just heard from many retailers that reported quarterly results last month, so there shouldn't be any big surprises," Cowen & Co. retail analyst John Kernan said.

A list of retailers of all stripes--including office supply stores like Staples Inc. (SPLS), big-box giants like Wal-Mart Stores Inc. (WMT) and department stores like Macy's Inc. (M)--lowered their fiscal-year outlooks after reporting second-quarter results, while teen apparel retailers like Abercrombie & Fitch Co. (ANF) guided for weak third quarters, which include the month of August.

Retailers are facing several challenges as they move into the end of the back-to-school season and start to rev up for the all-important holiday period. Mall traffic remains weak, promotional activity is still high, and apparel retailers in particular are facing difficult comparisons following last year's strong back-to-school season.

Meanwhile, consumers appear to be opening their wallets for bigger ticket items, such as furniture, automobiles and building supplies.

Ken Perkins from Retail Metrics noted the strong monthly sales reported by auto makers Wednesday, along with the 31% jump in August same-store sales posted by home-appliances retailer Conn's Inc. (CONN) Thursday, offer further evidence of a shift in consumer spending away from apparel and towards big-ticket items.

The nine retailers tracked by Thomson Reuters were expected to show 3.2% growth in August same-store sales, or sales at stores open more than a year, versus 6.5% growth a year earlier. So far, seven of the companies have reported and posted 3% growth.

Many retailers, including the major department stores, have stopped reporting monthly results over the past year, making it more difficult to gauge the performance of the entire industry. Gap Inc. (GPS) and teen retailer Zumiez Inc. (ZUMZ) are slated to report after the market closes Thursday.

L Brands Inc. (LTD)--formerly Limited Brands--posted 2% same-store sales growth last month, just missing expectations for 2.2% growth.

Of L Brands' units, Victoria's Secret reported a 3% increase in same-store sales, topping expectations for a 1.7% increase. Growth was due primarily to strength in bras and panties. Meanwhile, Bath & Body Works reported 1% growth, below expectations for a 3.3% increase, despite strength in the brand's home fragrance, and soap and sanitizer businesses. And La Senza reported 8% same-store sales growth for August, when 3.5% growth was expected.

A bright spot was Costco Wholesale Corp. (COST), which reported August same-store sales rose 5%, excluding gasoline, beating expectations for 3.5% growth. Among the stronger performing categories were small appliances, apparel, jewelry, health and beauty, and office, while same-store sales for consumer electronics were slightly negative. Top-performing regions included the Texas, the Midwest and the Southeast.

Regional discounter Fred's Inc.'s (FRED) same-store sales were flat, in line with expectations. Sales were hurt by an unfavorable calendar shift, Chief Executive Bruce Efird said, adding that several departments still performed well, including pharmacy, hometown auto and hardware, pet, lawn and garden, and most consumable product departments.

Among teen retailers, Buckle Inc. (BKE) recorded a 1% increase in same-store sales, slightly topping expectations for 0.4% growth.

Write to Anna Prior at [e-mail]

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