Looking Below the Surface

Looking Below the Surface

This morning March same store sales were released with results that unanimously exceeded expectations across the board.  While results in aggregate were amongst the strongest we’ve seen in years, inevitably there were several anomalies that stood out when we looked below the surface.  A few interesting points:

- While the Easter shift positively benefitted almost every retailer by 200-500 bps, Costco was the only one to report that Easter was actually a negative for the month.  Because the company is actually closed on Easter, the month had one less selling day this year vs. last.  As a result, Costco will benefit in April while the rest of the retail universe bears the negative impact of the shift.

 

- Costco and BJ’s Wholesale both noted that TV sales were weak during the month. Costco cited weakness due to both deflation and negative unit sales.

 

- GPS comments were clearly focused on its success with recent merchandising initiatives, with management going the extra mile to explain that they saw underlying strength excluding the Easter shift.  Interestingly, the company also noted that it will no longer comment on merchandising margin performance on a monthly basis.  This comes as a result of the company’s key focus being on same store sales and topline growth now that margin driving efforts are largely complete.  Clearly a shift from defense to offense.

 

- American Eagle Outfitters noted that tops priced under $20 were among the best performing categories in the store.  Clearly value remains top of mind amongst the teen customer base.  This was also evident in the strength we saw at ARO, and the lack of strength at Abercrombie and Fitch (even with gift card promos).

 

- “Conversion” was the buzzword of the day, with many retailers citing this as a key reason for strength.  Traffic was up, but “conversion” was even stronger.

 

- JC Penney noted that its home categories were the weakest in the store and online.  This is counter to trends we have seen out of TJX, ROST, KSS, BBBY, and WSM.  Historically home has been a key category for JCP, but market share losses are becoming more evident as the overall health of the category appears to be consistently improving.

 

- Nordstrom noted that March marked the 7th consecutive month in a row of increased year over year traffic.  It also posted one of the largest same store sales increases in department store history, with a 16.8% increase!

 

- Kohl’s stands out for the company’s geographic and merchandise consistency.  All regions posted at least a high teens increase, while all categories registered a comp increase of 19% or more.  

 

- Ross Stores noted that shoes and home remain the company’s best performing categories, with both increasing by 20% for the month.  Dresses were also strong, increasing in the teens.

 

- Target’s commentary on strong apparel sales, up mid teens, is a large part of the reason behind the company revising earnings upwards by $0.10. Interestingly, the new guidance of $0.84 will take Q1 earnings to the highest non-holiday EPS ever recorded in company history.  The prior peak was $0.82 back in 2Q08.

 

- Finally, it’s worth noting that ANF was one of the few companies that did not meet expectations for the month.  We continue to wonder if management’s decision to severely cut back on inventory is now meaningfully holding back sales.  Recall that management took markdowns on Spring goods before they even hit the floor (as well as diverted them to outlets) because they were unhappy with certain product.

Eric Levine

Director

Looking Below the Surface - 1 year

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