Retailers capped a weak back-to-school shopping season with
modest September sales gains in data out Thursday.
Stagnant wage growth, waning consumer confidence, and worries
over a pending government shutdown and potential default prompted
consumers to keep their budgets tight, raising concerns over
prospects for the upcoming holiday shopping season.
Sales at stores open at least a year rose 3.7% vs. a year
earlier for those retailers reporting monthly comps, according to
Ken Perkins, president of Retail Metrics. Analysts had forecast a
Excluding strong results from drugstore chainsWalgreen (
) andRite Aid (
), which reported September comps last week, retailers posted a
modest 2.3% gain.
"The results weren't horrible, but they weren't great," said
Back-to-school sales were sluggish for the month -- and "by
all accounts" -- for the season overall, Perkins says.
"Given the strong correlation between back-to-school selling
and holiday season, it raises a bit of a red flag on how the
holiday will look," he said.
Shutdown Delays Data
Michael Niemira, chief economist at the International Council
of Shopping Centers, says he's waiting to see the Commerce
Department's own retail sales data tally before he makes a call
on back-to-school sales. September sales were due to come out
Friday, but have been postponed due to the government
"The impression left by retailers was back-to-school was
weak," he said. "But I think we need broader data."
Consumers had two factors in their favor last month -- a
decline in gas prices and heavy promotions by retailers, says
"Both didn't contribute to any significant uptick in spending
at most retailers," said Perkins.
But ongoing job worries, stagnant wage growth, waning consumer
confidence, government shutdown concerns and a lack of newness in
fashion kept consumers from spending freely, Perkins says.
The weakness for the month, he adds, was in the apparel
The stock of giant apparel retailerGap (
) sank more than 5% after hours Thursday following the company's
report of a 3% drop in September same-store sales vs. a year ago.
Analysts expected a 1.8% gain.
"As consumers look to spend elsewhere on bigger-ticket items
like appliances, it's been crowding out spending in department
stores, specialty apparel stores and particularly teen apparel
retailers," Perkins said. "This is similar to what we saw in
second-quarter numbers with teen apparel retailers reporting
negative same-store sales."
The teen segment is projected to post the worst same-store
sales showing of all retail segments in the third quarter, with
estimates for a 7% year-to-year decline.
Teen apparel chainBuckle (
) and action-sports retailerZumiez (
) both missed views in September and saw a decline in comps.
Zumiez saw September same-store sales slip 0.6% from a year
earlier, below forecasts for a 0.3% decline. Buckle saw a 4.5%
drop in comps vs. estimates for a 1.5% gain.
Niemira calculates September same-store sales rose 3.5% vs. a
"It's a mixed picture overall," he said. In general he calls
the month's showing an "apparel story."
"This year we saw a reversal of the run-up in consumer prices
for apparel," said Niemira. "And sluggish demand caused apparel
retailers to increase their discounting."
The parent company of Victoria's Secret,L Brands (LTD), turned
in a 1% comp gain in September on top of a tough 6% comparison
last year. Analysts had expected a 2% increase.
Like many mall retailers, L Brands was forced to be more
promotional amid sluggish traffic and soft economic growth,
Costco Wholesale (COST), which reported Wednesday, saw a 3%
gain in September comps, missing estimates for 3.4% growth. While
Costco routinely turned in positive surprises from 2010 to 2012,
this marked the fifth miss in nine months so far this year for
the giant retailer, says Perkins. Factoring out foreign exchange,
Costco's core comp gain in September was 5%, which was above
views for a 4.5% increase.
Walgreen, which reported the month's comps last week, saw a 7%
increase vs. a year earlier. But the nation's largest drugstore
chain faced an easy comparison of an 11% decline for the month in
2012, Perkins says.
Niemira, who tracks 12 retailers, says it's hard to say a lot
on the September data as a whole because "increasingly it's
getting so fragmented."
Month-to-month results may be company-specific, he adds.
He cites the lofty result from Walgreen this month as an
Regional discounterStein Mart (SMRT) saw a strong September
performance. It reported a 5% pop in the month's comps, ahead of
views for a 3.2% increase.
Looking to the third-quarter tally, the strongest performing
retail segments are expected to be home and building supply
retailers, luxury and auto retailers, says Perkins.
In the home improvement sector,Home Depot (HD) andLowe's (LOW)
are expected to have a strong third-quarter showing -- with a
mid-single-digit increase in comps -- but not as strong as their
second-quarter results, says Perkins.Restoration Hardware (RH) is
also forecast to see a very strong third-quarter comp performance
in the 20% range, as is high-end fashion houseMichael Kors
Holdings (KORS), Perkins says.
The jury is still out on the holiday season. Among the factors
affecting holiday gift-buying is the "crowding out effect" strong
auto and home goods sales -- like furniture and appliances -- are
having on mall-based retailers, says Perkins.
It's "a factor that was not in play last year," he said. "The
fall fashion cycle has been somewhat ho-hum relative to last
year's burst of color."
If the government shutdown persists for any prolonged period
and there's any sort of default, it would "clearly have an
adverse effect" on spending for the holiday, he adds.
As to the impact of government spending issues on the holiday,
Niemira says: "We can move beyond it quickly if it's over next
week. If they come to a conclusion I suspect it has very limited
The question, he says, "is how much do these problems spin out
of control -- do we default and what does that mean to the
financial climate and consumer confidence? I don't think we'll
get there, but it's a clear risk."
Niemira forecasts a "moderate" gain in GAFO (general
merchandise, apparel and accessories, furniture and other) sales
for November-December of 3.4%. That would be a "tad" stronger
than last year's 3% increase, he says.