This morning’s sales reports were choppy as was expected with the concoction of BTS, Irene, and the start of more challenging 2H compares all taking hold. Not surprisingly, with only one month of Q3 now in the books there was little color on any change to internal full-year outlooks, or margins, but the same number of companies beat on the sales line as missed and sales decelerated on both a 1yr and 2yr basis for the second consecutive month. This is not good for one of retail’s most crucial selling seasons and suggests early confirmation of our view that Q3 earnings season is setting up to be the worst in two-years.
On the whole, BTS commentary was unremarkable (TGT good, JCP poor) while surprisingly few retailers highlighted Irene among the key reasons for lighter sales (JCP was one of them). That said, most retailers noted anywhere from a 0.5%-3% impact to comps from the storm. Interestingly, TGT noted a positive +0.5% benefit from the storm adding that the shift is likely to impact September by a like amount.
Our sense is that many retailers - especially on the discretionary side - are underestimating the percent of sales that are lost forever vs. pushed into September.
A few additional callouts in August:
- High/Low-end performance bifurcation persists. Within department stores, JWN +6.7%, SKS +6.1%, M +5% outperformed while TJX +1%, SSI -1.7%, KSS -1.9%, JCP -1.7% all underperformed.
- Discounters continue to be the strongest performing segment of retail. This is likely due to greater grocery exposure, which continues to be a key category. Retailers with exposure there (TGT up mid-teen, COST up LDD, & BJ) all came in well above expectations.
- JCP was a clear negative callout again. The most notable callout in its report was e-commerce down -8%. The rate of underperformance in this category appears to be accelerating to the downside making it increasingly more difficult to meet top-line expectations. This is hardly a business that should be down for anybody - ever.
- GPS was another negative callout with both domestic and international business down HSD. International was down 9% - this is supposedly their growth engine?
- Lastly embedded in LTD’s solid sales report was La Senza (their higher end concept) coming in down -8% reflecting a sharp deceleration at the high end.
Shorts: JCP, JCP, and JCP. HBI, GIL, UA and COH
Longs: WMT, TGT, NKE, LIZ