Retailers bucked the head winds of a government shutdown and
an uncertain economy in October, posting sales gains that topped
forecasts in reports out Thursday.
The results reflect some resiliency on the part of consumers
in a challenging environment -- an encouraging sign as retailers
head into the holiday shopping season with promotions planned
ahead of the traditional
Black Friday sale
Sales at stores open at least a year rose 4% in October vs. a
year earlier for those retailers reporting monthly comps, says
Ken Perkins, president of Retail Metrics. Analysts had predicted
a 3% gain. Factoring out results from drugstore chainsWalgreen (
) andRite Aid (
), retailers posted a 3.4% increase.
Retailers across segments topped views, including giant
warehouse clubCostco Wholesale (
), Victoria's Secret parentL Brands (
), apparel giantGap (
) and teen retailerBuckle (BKE).
"It was a refreshing series of numbers that came out this
morning with most retailers exceeding expectations, given the
government had shut down and consumer confidence waned," Perkins
said Thursday. "We finally got some cool weather in the back of
the month that coincided with the opening of the government,
which helped business for buy-now, wear-now apparel."
Michael Niemira, chief economist at the International Council
of Shopping Centers, tallies a 4.1% gain in October comps for the
retailers reporting monthly same-store sales that he tracks in
"It's a return to being back on track for this group of
retailers," he said. "This is encouraging. This year's holiday
season has the potential to be a pleasant surprise for the
industry, given today's reports showing how resilient the
consumer can be as well as improving economic conditions."
Auld Lang Syne
The October results, combined with an improved economic
environment, are "reinforcing our view that the holiday season
will be modestly better" than last year, Niemira added.
He forecasts a 3.4% year-over-year gain in GAFO (general
merchandise, apparel and accessories, furniture and other) sales
for November-December. That would be a "tad" stronger than last
year's 3% increase, he says.
Perkins concurs that the October same-store sales results are
"somewhat encouraging." But he sees a "rather ho-hum, highly
competitive holiday season."
"Any retailer that made any comment was very cautious on the
fourth quarter and rightfully so," he added. "It whittles down to
the fact that the labor market is chugging along at a modest
growth pace, but not generating outsized job gains that are
pushing up wages -- so income is stagnant for the vast majority
of consumers. That is something that limits the overall spending
Consumers had two factors in their favor last month -- a
decline in gas prices and "very aggressive sales on the part of
retailers," Perkins said. But overall, he adds, analysts were
cautious in their estimates for the month.
"Given the sluggish economic growth we had been seeing,
coupled with the government shutdown, the estimates were
particularly low," Perkins said. "So the bar wasn't particularly
Even in a challenging retail environment, L Brands racked up
an 8% gain in October comps vs. views for a 2.5% gain. The
retailer also announced that it now expects third-quarter
earnings to come in at the high end of its prior forecast of 23
cents to 28 cents per share.
Costco also came in with a solid 3% rise in total company
October comps, ahead of forecasts for a 2.4% rise. Its core U.S.
same-store sales -- excluding negative impacts from gas price
deflation and foreign exchange -- were up 5%, above views for
Gap posted a 4% rise in October comps, sailing past views for
a 0.6% gain.
In a struggling teen space, Buckle logged a 2.6% gain, well
ahead of views for a 1.8% decline.
Action sports retailerZumiez (ZUMZ) saw a 1.2% increase in
October comps, just shy of forecasts for a 1.4% rise.
Regional discounterStein Mart (SMRT) posted a 5.4% gain,
beating estimates for a 2.2% increase.
Overall, consumers are still very "selective" about spending
at retail, with their sights focused on "bargains," Niemira
"It's a more volatile retail environment," he said. "But
consumers overall can be enticed into buying and they seem to be
buying a bit more than they were three to six months ago."
Niemira expects November comps to rise 3.5% to 4.5%. He says
the number could be "a lot stronger" given all the stores opening
on Thanksgiving and adding more shopping hours, and the fact
retailers saw "very weak" November comp performance a year
Discount Days Ahead
Perkins says the holiday shopping season is likely to be "very
competitive with margins at risk" as retailers use aggressive
markdowns to drive sales.
Retailers will need to lure consumers with sales, he adds,
unless they have a "niche product" and cater to the higher-end
consumer considered less price-sensitive.
He sees high-end fashion houseMichael Kors Holdings (KORS),
upscale jewelry retailerTiffany & Co. (TIF) and high-end
department store operatorNordstrom (JWN) as among retail's best
performers this holiday season. Off-price retail operators such
asTJX Cos. (TJX) andRoss Stores (ROST) should also perform well,
he adds, because they offer a "good value proposition."
Analysts forecast the industry's fourth-quarter profits to
rise 4.5% vs. a year ago, Perkins says.
"That's OK," he said. "But it's certainly nothing to get
Niemira expects fourth-quarter comps for the retailers he
tracks to rise 2% vs. a year earlier. That compares with a 1.3%
gain in fourth-quarter comps for those retailers in 2012.
"The year-end will be better on the whole than a year ago," he
adds. "It doesn't matter which metric you pick," Niemira