Consumer Products

Target's Flop, Many Retailers Stand Out (TGT, COST, BJ, M, SKS, DDS, GPS, LTD, ANF, AEO, ARO, WMT)

Retail stores are reporting December sales today and the news is, at best mixed. Retailers reporting already include Target Corp. (NYSE: TGT), Costco Wholesale Corp. (NASDAQ: COST), BJ’s Wholesale Club Inc. (NYSE: BJ), Macy’s Inc. (NYSE: M), Saks Inc. (NYSE: SKS), Dillard Department Stores Inc. (NYSE: DDS), Gap Inc. (NYSE: GPS), Limited Brands Inc. (NYSE: LTD), Abercrombie & Fitch (NYSE: ANF), American Eagle Outfitters (NYSE: AEO), and Aeropostale Inc. (NYSE: ARO).

Target posted a same-store sales gain of 0.9%, where analysts had been expecting a gain of 4%. The company said that grocery and apparel sales were good, but that electronics, toys, and some home products sales suffered. The company also believes that some sales had moved to earlier in the season. For November, the store posted a same-store gain of 5% compared with analysts’ estimates of 3.7%, so there may be something to that. Target also noted that “lower margin items drove a higher portion of sales than expected.”

Costco posted a sales gain of 6%, compared with expectations of 6.2%. Excluding gasoline sales and currency exchange benefits, Costco’s sales rose 4%, compared with expectations for a 5.2% gain.  BJ’s reported yesterday that December same-store sales rose 1.4%, excluding gasoline sales, and 3.8% in total. Analysts were expecting 3.4% excluding gasoline and 4.4% overall.

Macy’s sales rose 3.9% compared with estimates of 4.5%. The company lowered its fourth quarter EPS estimates to $1.44-$1.49. Analysts were expecting EPS of $1.50.  Saks hammered estimates of a same-store sales gain of 3.9% by posting a sales increase of 9.8%.  Dillard’s also handily beat estimates of a 3% gain. The company reported same-stores sales grew 7% in December.

Gap same-store sales were flat in December, failing to meet expectations of a gain of 2.6%. The Limited posted a same-store gain of 5%, slightly higher than estimates of 4.6%. Abercrombie & Fitch posted a whopping gain of 15% in same-store sales for the month. Estimates had been for a 10.9% rise. Net sales rose 26%, to $596 million.  American Eagle sales tanked. Analysts had been expecting a drop of -1.7%, but the company reported a decline of -11% and a total sales drop of -6%.  Aeropostale also failed to meet low expectations. The company posted a drop in same-store sales of 5%, compared with estimates for a drop of -2.6%. Total sales rose, however, by 3%.

For some retailers, strong November sales didn’t carry over into December. Consumers shopped early and then stayed home. Huge storms on the west coast just before Christmas and on the east coast just after the holiday also get some of the blame for the mixed showing in December sales. Some stores, like Target, lowered prices in the final weeks before Christmas in an effort to lure more buyers. Apparently that worked, as Target noted, but the cure was no better than the disease.

Even though Wal-Mart Stores Inc. (NYSE: WMT) no longer reports monthly sales, the relatively lackluster performance of Target, Costco, and BJ’s could be pointing to a softer quarter for the world’s largest retailer. The company has been struggling to improve sales in its US stores, where sales were down -1.3% in Wal-Mart’s third quarter ending in October 2010. Using Target as a guide, Wal-Mart probably won’t turn its US sales figures around in the company’s fourth quarter which ends in January 2011.

Back to the weather. Abercrombie, which reported a huge 15% boost in sales, noted that the cumulative value of unredeemed gift cards was “not significant” at the end of December 2010, whereas in December 2009 the value of unredeemed gift cards was $22 million. That accounts for some, but not all of the store’s gains. And if Abercrombie’s customers can go out in the snow and rain to cash in their gift cards, why did the other stores’ customers stay home? Are they just to delicate to venture out and spend?

Paul Ausick

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