U.S. Retailers Post Muted September Sales
Retailers posted muted sales gains in September even as they stepped up promotions, ending the back-to-school period on a sour note and raising some concerns about the key holiday season.
Same-store sales--for the few companies that still report monthly results--came in below expectations as retailers were hurt by continued weak mall traffic and increased promotions, especially among teen-focused companies.
Teen retailer Buckle Inc. (BKE) was one of the worst performers of the month, posting a 4.5% decline in same-store sales, when an increase of 1.2% was expected. Gap Inc. (GPS) also underperformed, reporting a 3% decline, well short of the 1.6% growth that was expected.
September proved to be a difficult month, said Ken Perkins of Retail Metrics, noting "back-to-school sales were lackluster at best" and "the fashion cycle was uninspiring." He noted consumer confidence waned in part due to government shutdown worries and that consumers continued to focus on bigger-ticket purchases such as cars, housing and student loans.
The back-to-school season is often seen as an indicator for a retailer's performance during the key holiday period. The National Retail Federation expects sales in November and December to increase 3.9% from last year.
The nine retailers tracked by Thomson Reuters posted 1.6% growth in September same-store sales, or sales at stores open at least a year, versus the 3.1% consensus estimate and the 5.5% increase posted a year earlier.
Many retailers, including the major department stores, have stopped reporting monthly results over the past year, making it more difficult to gauge the performance of the entire industry.
David Bassuk of consulting firm AlixPartners said consumers are willing to spend on select "must-have items," but retailers must offer compelling values and new ideas to get them to open their wallets. Additionally, a decline in consumer credit-card spending over the past three months may not be a good sign for retailers, he said.
"The consumer is very pensive," he said. "They're cautiously looking around, they're holding back on spending and they're really uneasy about what is going on in Washington. When a consumer feels this way, the retail community needs to be much more aggressive to get them to spend."
Teen consumers in particular have been much more cautious with their spending, prompting retailers to step up promotions and discounts.
"Teens are very particular about what they buy and are very trend driven," said Craig Rowley of Hay Group, a consulting firm. "If they decide not to buy, promotion is the only way to move the product."
Teen retailer Zumiez Inc. (ZUMZ) reported a 0.6% decrease in September same-store sales, in line with expectations. Footwear, men's and boy's categories posted weaker same-store sales, while juniors, hard goods and accessories had positive comparisons.
Among Gap's brands, its namesake stores posted a 3% decline versus the 2.8% growth estimate, while Banana Republic's same-store sales slipped 5%, compared with expectations for a 1.6% increase. Old Navy recorded a 2% decline, while expectations were for a 0.7% increase. The company added traffic slowed towards the end of the month amid economic uncertainty, and its men's business outperformed its women's division at all three segments.
L Brands Inc. (LTD)--formerly Limited Brands---reported same-store sales rose 1%, below analysts' estimate of 2% growth. The company said it undertook more markdowns than planned to boost traffic. The increased promotions, particularly in the younger consumer-focused Pink division, drove the company's merchandise margin rate down from a year earlier. Of L Brands' units, Victoria's Secret, which houses the Pink division, posted a 1% increase in same-store sales, compared with an expected 2.2% increase. Meanwhile, Bath & Body Works sales rose 2%, topping the expected 1.5% increase.
Discount retailer Fred's Inc. (FRED) said same-store sales rose 2.8% last month, topping analysts' expectation for 2.3% growth. The company said pharmacy sales and script growth were critical to its performance last month.
Costco Wholesale Corp. (COST) reported its U.S. same-store sales for the month increased 5%, excluding impacts from gasoline price deflation and foreign exchange, just shy of the 5.1% growth analysts had expected. Among the warehouse- club operator's strongest performing categories were food and sundries. The southeast and Texas were strong performers by geography last month. Costco also reported fiscal fourth-quarter earnings and revenue that missed Wall Street estimates, with some analysts pointing to a rise in overhead costs.
Write to Nathalie Tadena at firstname.lastname@example.org
Earlier version misstated the same-store sales increase in September. The correct figure is 0.4%, not 1.6%.
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