Retailers delivered robust sales gains in June, topping
forecasts as a brighter jobs picture, savory deals and favorable
weather prompted shoppers to hit the malls for light clothing and
other seasonal goods.
But recent earnings guidance and comments from industry
executives suggest the home goods sector is weakening and that
headwinds persist as stores move toward the key back-to-school
Sales at stores open at least a year rose 5.5% from a year
earlier, according to Ken Perkins, president of Retail Metrics.
Retailers sailed past analysts' forecasts for a 4.9% gain. It was
the fourth straight month retailers beat views.
Costco Wholesale (
), activewear sellerZumiez (
),Rite Aid (
) andStein Mart (
) all turned out same-store sales that were above views.
"The monthly reporters turned in solid results for the month
of June, fueled by an improved employment picture, heavy
promotions and favorable weather conditions," said Perkins.
But he remains cautious: "It certainly doesn't signal that all
is clear for retailers. We had a number of retailers over the
last couple days raise red flags that the consumer still isn't
feeling particularly strong. I don't think a 5.7% increase for
monthly reporters suggests there is a strong rebound taking place
in the retail space by any means."
Home Retailers Hit
One of those "red flags" came from hardwood floor giantLumber
Liquidators Holdings (LL). In a second-quarter update on
Wednesday, it guided earnings for the quarter "significantly
lower" and reported a 7.1% decline in the quarter's same-store
sales, which was a "significant miss," says Perkins.
The report didn't bode well for the home goods sector: "Our
reduced customer traffic has coincided with certain weak
macroeconomic trends related to residential remodeling, including
existing home sales, which have generally been lower in 2014 than
the corresponding periods in 2013," said CEO Robert Lynch in a
press release. "We now believe the prolonged purchase cycle
associated with our customers' discretionary, large-ticket home
improvement projects is likely to be delayed for some customers
into the fall flooring season, and for others, into spring of
Adds Perkins: "They're signaling the remodel and housing
markets might not be as strong as many would hope. We knew in the
spring the real estate market was slowing from a year ago."
Overall, same-store sales growth for the home sector retailers
has slowed in the past couple of years and particularly in the
past year, Perkins says.
For example, Lumber Liquidators saw a 14.9% pop in same-store
sales in the second quarter of 2013, compared with the 7.1%
decline in this year's second quarter.
Another example is home improvement giantHome Depot (HD). It
saw a 10.7% rise in same-store sales in the 2013 second quarter.
Analysts estimate it will show a 4% rise in this year's second
Why the slowdown in the sector? "Higher mortgage rates coupled
with a growing (lack of affordability) for first-time home buyers
are putting pressure on sales for these categories," said
Home furnishing sales have been holding up OK, he says. Still,
he says the slowing pattern in same-store sales growth is also
occurring in this category. That includes top-performing luxury
furniture retailerRestoration Hardware (RH) .
Analysts estimate that its second-quarter same-store sales
will rise 14.8% from a year earlier, says Perkins. That would be
slower than the 26% pop seen in the 2013 second quarter.
Perkins says the company's same-store sales growth has been
"sequentially slower" in each quarter since same-store sales
climbed 41% in last year's first quarter.
Recent lowered second-quarter outlooks from retailers such as
Lumber Liquidators and farm and ranch store operatorTractor
Supply (TSCO) combined with comments from industry executives
"suggest retailers are facing continued headwinds as we move
toward the back-to-school selling season," Perkins said.
But Michael Niemira, a consultant for the International
Council of Shopping Centers, is upbeat on the
back-to-school-season, which runs from late July to
"I am most encouraged about back-to-school," he said. "The
reason I am optimistic about back-to-school is the strength in
same-store sales we've seen over the last three months as well as
the improvement we've seen in the economy and the job
He projects total July-August-September sales of items such as
electronics, family clothing, books and shoes, will rise 1.7% vs.
a year earlier to $42.9 billion. That would compare with a 0.9%
rise a year earlier.
Niemira expects to see a lot of "strength" in back-to-school
selling for the family clothing and shoe segments due to
"increased demand triggered" by the improved economic conditions
and labor market.
Most retailers reporting monthly fared well in June. Warehouse
club and typical top retail performer Costco reported a solid 6%
rise in June same-store sales, aided in part by higher fuel
prices. It beat views for a 5% gain, says Perkins. Core U.S.
same-store sales were also up 6%, topping forecasts for a 5.3%
Giant drugstore operator Walgreen reported a 7.5% rise in June
same-store sales on July 3, beating forecasts for a 6.8%
increase. That same day rival Rite Aid posted a same-store sales
increase of 3.9% in June, besting views for a 2.6% gain.
Action sports retailer Zumiez posted a 3.1% gain in June
same-store sales late Wednesday, well ahead of views for a 2.3%
Teen apparel retailerBuckle (BKE) saw a 0.7% increase in last
month's same-store sales, besting views for a 0.5% decline.
Among the misses was Victoria's Secret's parentL Brands (LB),
which saw a 2% rise in June same-store sales, below views for a
2.7% increase. It was its first negative same-store sales
surprise this year.
Apparel giantGap (GPS) posted a 2% decline in June same-store
sales from a year earlier, missing views for a 0.7% gain.
A slight miss came from regional discount chainStein Mart (
). It saw a 2.6% rise in last month's same-store sales, which
were slightly below a projected 2.7% gain.
Membership shopping warehouse club operator in Latin America
and the CaribbeanPriceSmart (PSMT) saw a 1% rise in June
same-store sales, less than views for a 4.5% gain.
While the overall performance for June was "healthy, there
continues to be a dichotomy between staples and discretionary
spending," Niemira wrote in a report.
"Discretionary spending may be improving for the upper-end
consumer," he said. "But the mid- to lower-end consumer is still
very cautious on discretionary spending."
Perkins adds that those consumers, who have discretionary
income to spend, are trending toward buying more "experiential"
types of purchases such as travel and entertainment. Big-ticket
items such as cars are also faring well.