Retail: Spotlight on the Mid-Tier

February comps came in largely ahead of expectations shining the spotlight on mid-tier weakness ever brighter.


February sales reflect a solid start to the year for retailers…most of retail that is. The beat-to-miss ratio was favorably skewed with 14 companies coming in ahead of expectations compared to only 4 misses. The most notable callout from the morning is the fact that on the same month that JCP and DDS join the ranks of the SSS alumni, KSS was one of the few retailers to come in below expectations shining the spotlight on mid-tier weakness ever brighter. This is consistent with our view that the increasingly competitive pricing dynamic playing out in the mid-tier is heating up.


Here are some additional callouts:


  • The High/Low-end department store performance spread remains intact. JWN comps came in 4+ pts above consensus at +10.2%, SKS +6.6% & M +4.6% while KSS came in (-0.8%) as one of the key misses on the morning. JWN highlighted a shoe clearance event that typically takes place in March as a driver of 200-250 bps of comp during the month with a negative 150-200bps impact on March however excluding the event’s contribution, comps would have still come in ahead of estimates by 2 pts.  
  • Off-price retailers ROST and TJX continue to outperform with both reporting +9% in February ahead of expectations. Notably the spread between the blended off-price comp and total monthly comp increased from +3.9% to +4.1% in February. Both retailers highlighted favorable weather as drivers of spring apparel sales during the month. Exiting 2012, guidance from both TJX and ROST suggested upside to consensus 2012 EPS expectations. As pricing continues to heat up at the mid tier (see KSS), we expect the off-price channel to continue to outperform.  
  • KSS: was the clear underperformer (-0.8%) vs. (-0.1%E) and is now the last mid-tier retailer standing with both JCP and DDS no longer reporting monthly comps. KSS highlighted children’s, women’s, footwear and home as slightly positive to negative; all categories that were positive callouts among other companies reporting this morning.
  • GPS: was one of the biggest upside surprises of the day +4% vs. (-1.6%E) with positive comp growth across all of the domestic businesses. The first round of merchandise designed at the new Global Creative Center in NYC hit stores on February 10th. CEO Glenn Murphy did not comment specifically on the Feb MTD performance of the new spring product on last week’s call but not surprisingly was optimistic regarding the creativity at the new global hub.
  • TGT: beat expectations in both January & February by 2 pts up +7% this month. February performance was notable given an increase in comp transactions, average transaction size, better than expected traffic and comp increases in every region. Further, TGT comped positively across all of its major categories for the first time in over a year (see table below).
  • LTD: came in +8% vs. +7%E after increasing guidance for the month from LSD to MSD. Consistent with guidance given on the Q4 call, the company again highlighted merchandise margins down in all segments.
  • ROST, TJX, TGT were all positive regarding their inventory position at month end while WTSLA highlighted low inventory levels resulting in weaker top line results.
  • At a category level, Handbags, Footwear and Accessories continue to perform well at the high-end (JWN, SKS) with men’s and women’s apparel highlighted by TGT, M, BKE, SKS, ROST.


Longs: LIZ, NKE, RL



Matthew Darula



Retail: Spotlight on the Mid-Tier - high low comp


Retail: Spotlight on the Mid-Tier - Total SSS


Retail: Spotlight on the Mid-Tier - TGT SSS grid

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