Department Store SIGMA
Department store results are out -- and the SIGMA comparisons are flat-out ugly. In the SIGMA chart below we plot the incremental move from 4Q to 1Q for each company. While the margin results are often predictable based on easy or tough yy compares, the sales/inventory spread is not. Unfortunately for the department store group, EVERY company printed an erosion in inventories relative to Sales -- with an average decline of 6%. The biggest offenders are JCP and KSS at about 2x the group average. The problem here is that the retail industry in aggregate just put up its last 'easy' quarter before margin compares get very difficult. With a less favorable inventory position, it makes the gross margin setup even more difficult for 2Q. Add on wage pressure that is likely to hit in late summer when retailers hire flex employees for back-to-school, and the potential pressure from 'free shipping' in 4Q, and it tells us that the group is reliant on a significant acceleration in consumer demand to maintain its current growth algorithm.
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