Retail Sales Wave Red Flag In A Rough Holiday Season
Retailers kicked off the holiday season on a sour note with disappointing November sales gains in reports out Thursday.
Deep discounts throughout the month didn't do much to spark a spending spree, a sign that retailers could be in for some tough sledding as they enter the holiday season's home stretch.
Sales at stores open at least a year rose 1.9% vs. a year earlier, according to Ken Perkins, president of Retail Metrics. Analysts had forecast a 2.9% gain. That was a sharp deceleration from October's 4% increase.
Two of the best-performing retailers over the past five years,Costco Wholesale ( COST ) andL Brands ( LTD ), both missed November views. Their results, says Perkins, reflect the tough retail environment that prompted widespread discounting throughout the month, well before the usual Black Friday promotions.
"The overall results were very disappointing," said Perkins. "Santa delivered some early coal to retailers during November and during the Thanksgiving/Black Friday holiday weekend. It says that retailers are in for a real dogfight this holiday season."
Deep Discounts In Store?
Retailers are going to find it difficult to "squeeze blood from a stone," he adds, given that most consumers don't have excess discretionary dollars to spend.
It means that stores will have to offer 50% off or more to get consumers to spend, Perkins says.
L Brands cited a late Thanksgiving as a major negative. For November the company reported a sales decrease of 5% from October, its first negative monthly comp since October 2009. Analysts had forecast a 1.2% decrease. The parent of Victoria's Secret indicated that it expects December comps to rise in the low- to mid-single digits, Perkins says.
Costco's total company comps, including gasoline sales, were up 2% vs. a year ago, missing views for a 3.5% gain. It was its smallest gain for the giant warehouse club discounter dating back to September 2009. Costco's core U.S. comps, excluding the impact of gasoline sales, came in at a 3% rise, short of forecasts for a 4.5% gain.
Perkins says Costco's showing reflects the "broader consumer caution out there and their unwillingness and inability to open their purse strings."
Regional discounterStein Mart ( SMRT ), a strong performer of late, was also off its game in November. It posted a 3.1% rise in comps for the month, slightly missing views for a 3.2% rise.
Apparel giantGap ( GPS ) gave some cheery news late Thursday when it reported a 2% rise in November comps, well ahead of the 0.7% expected gain. But action-sports retailerZumiez ( ZUMZ ) saw a 1.7% lift, sharply missing forecasts for a 2.8% rise.
Perkins says the November showing overall "doesn't bode well for the final stretch" of the holiday season -- it suggests the holiday period will be weaker than expected.
A Warmer View
Despite the soft November showing, Michael Niemira, chief economist at the International Council of Shopping Centers, remains optimistic and is sticking to his November-December holiday forecast.
"I know it's a very competitive environment for retailers and consumers are very cautious," he said. "But the economics behind all this is improving and, consequently, I remain optimistic we'll see the kind of performance industrywide we had anticipated."
The economic factors he refers to include a "strong" GDP report on Thursday.
Niemira forecasts a gain of 3.4% vs. a year ago in GAFO (general merchandise, apparel and accessories, furniture and other) sales for November-December. That would compare with last year's 3% increase, he says. Niemira calculates November comps for the 12 monthly reporting retailers he tracks came in up 2.1% vs. a year ag o.
He expects December same-store sales growth to come in at 3% to 4%, and says that's conservative and may come in stronger -- as this year Cyber Monday sales will be pushed into December while last year that online shopping frenzy occurred in November.
"Cyber Monday would give an even larger lift to December's sales," Niemira said.
November's soft showing, Niemira says, raises some questions. One is: "How representative of the broader industry were the results, especially given the 10.1% gain in November same-store salesJ.C. Penney (JCP) reported," he said. "Is J.C. Penney taking market share from other retailers?"
Jharonne Martis, director of consumer research at Thomson Reuters, has concerns about the holiday shopping season, given November's soft results.
"November same-store sales are very worrisome," she said. "They suggest that consumers are procrastinating and waiting for last-minute deals. They believe that as they approach the holiday the deals will get better. That doesn't bode well for retailers. It's a very promotional environment, and that means they will have to continue to do so."
Old Stock For New Year
Another concern for Martis: Thursday's revised GDP number "suggests retailers have high inventory levels," she says, which "speaks to discounting going into January." So when January arrives and consumers use their gift cards, she adds, they'll do so to buy discounted items vs. full-price items, which might hurt the bottom line.
Thomson Reuters analysts have lowered their November-through-January comp expectation to 1.7% from their month-old 1.8% view. That would be slightly higher than last year's 1.6% rise in comps for the quarter but still below the "healthy" level of a 3% gain, Martis says.
Luxury and generally higher-end retailers will fare better over the holiday season, Perkins says. They would includeMichael Kors Holdings (KORS) andTiffany & Co. (TIF), both of which shone in the latest quarter. Off-price retail operators such asTJX Cos. (TJX) andRoss Stores (ROST) should also have a cheery season, Perkins says. Teen apparel retailer and specialty apparel chains, suffering right now, will continue to do so over the holiday.