Half Empty or Half Full?

Another mixed-bag month for same store sales, but this time it appears to be more directionless than most.  The focus is about to shift to back-to-school and the challenge is in reading whether June was half-empty or half-full.  Depends on who you ask.



Another mixed-bag month for same store sales, but this time it appears to be more directionless than most.  The reality is, demand is neither getting materially better or worse.  The underlying two-year comp trend has now been flat to down 1% since December (with the exception of a near perfect setup in March).  Perhaps the biggest takeaway with today’s results is that the outlook is less clear than it has been in a while.  This is best evidenced by the limited amount of earnings revisions we received today, despite the fact that many companies actually posted solid absolute results, cited tight inventories, and strong sell through of higher margin apparel.  Yes, there is earnings upside to be had but that is a coincident indicator.  The focus is about to shift to back-to-school and the challenge is in reading whether June was half-empty or half-full.  Depends on who you ask.


Half Empty or Half Full? - SSS 7 8 10


Highlights from another sales day data dump:

  • Target noted that strength in the month was led by food and HBA, followed by apparel.  Most notable was management’s callout of softness in electronics, video games, music, and movies.  Recall that TV’s especially have been under pressure given an industry slowdown in promotional activity.
  • Ross Stores continues to highlight home, dresses, and shoes as top categories.  This is consistent with prior months.  Florida and the mid-Atlantic were the strongest regions, increasing by high single digits.
  • Kohl’s noted that favorable weather (a.k.a HOT!!!) helped to lead the Northeast and mid-Atlantic to outperformance for the month.  Footwear and men’s were the strongest categories for the month.  Strength in men’s is notable and something to watch.  Clearly Father’s Day had a positive impact.
  • Nordstrom highlighted dresses, jewelry, and women’s shoes as leading categories for June.  Also of note was particular strength in the company’s Half Yearly Sale, which posted a high single digit increase. Sales trends in the first half of the month were stronger than the back half, which is in part due to the timing of the sale event.
  • JC Penney noted that company’s best region was the Southeast, while all were positive.  Interestingly, JCP cited a mid teens increase in regular and promotional sale across all apparel categories, offset by substantially lower clearance sales.  Overall, this is a solid endorsement for gross margins, although an earnings guidance update was notably absent from the release.  Home continues to be a weak spot for the company.
  • Abercrombie noted that its positive June results were largely the result of sales events that ran across all brands throughout the month.  Notably, weeks four and five were the strongest.  No mention of bed bugs.
  • Gymboree attributed its upside revision to earnings to share repurchase activity.  The company repurchased 2.2 million shares in the quarter for $96 million.  This leaves the company with 28 million shares outstanding, which suggests a pretty meaningful buyback has taken place.
  • Gap Inc. noted that “June results were disappointing, driven by traffic that remained negative at all three brands”.  Furthermore, margin pressure is now anticipated to in July to keep inventories clean.  At Gap, kids and baby outperformed adult, while men’s outperformed women’s.  Overall, the company’s tone and results clearly highlight concern in the near term.  Recall that management essentially stated that 2010 is a topline year and inventory/margin improvements are nearing an end.
  • Costco noted that inflationary trends were slight and consistent with May.  Management also noted that TV and computer sales remain negative, in line with the trend over the past several months.  Less coupons and promotional activity is a key reason behind the weakness in the TV category.
  • E-commerce had another standout month at Kohl’s (~+50%), Abercrombie (+62%), Aeropostale (+43%) , Macy’s (+37.6%), and Nordstrom (+66%).
  • Aeropostale noted that all regions for the month were positive and equally strong.  Weeks one and four were the strongest.
  • American Eagle stands out as one of the few to admit sales were below expectations for the month, with weakness persisting throughout June.  As a result, promotional activity was increased to drive incremental unit sales.  The formula worked, driving unit sales up mid-teens while average unit retails decreased by low double digits.  Unfortunately, this strategy will result in margin pressure making this the second time in as many months that AEO tempered earnings expectations.
  • Hot Topic highlighted a wide divergence in category performance within its stores for June.  Licensed led the way, increasing by 18% while fashion apparel was considerably weak, down 29%.
  • Limited Brands continues to note (as they have for the past several months) that merchandise margins continue to improve driven by less “sale” days, tighter inventory management, cost savings efforts, and favorable product mix shifts.  Overall, newness continues to sell well as evidenced by a 17% comp increase at Victoria’s Secret. 
  • HomeGoods continues to outperform the other divisions at TJX, with comps increasing 8% on top of a strong 10% increase last year.  On the flipside management noted that the company’s UK and Ireland stores are underperforming in part due to execution issues which are being exacerbated by weakening consumer confidence in those regions.

- Eric Levine

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