January Retail Sales Outlook: Clearance Prices Didn’t Help

January is usually clearance month for retailers seeking to attract shoppers again after the busy holiday season. This year, it looks like weakness in the December scene carried over into the New Year. The Thomson Reuters Same Store Sales Index forecast for January 2016 is for 0.2% growth overall and for 0.0% growth excluding the drug store sector. Both figures are significantly lower than the January 2015 actual retail growth rate of 1.5% overall and 0.6% ex-drug.

We are seeing that slow holiday sales added more clearance merchandise to January’s inventory. In addition, when cold weather finally arrived in the northeastern U.S. (along with a huge blizzard), it kept shoppers at home and hurt mall traffic in January, particularly at brick-and-mortar retailers.

Analysts polled by Thomson Reuters expect the apparel sector as a whole to report a -1.3% SSS, compared to the 1.7% gain in SSS recorded in January 2015. Excluding Gap, one of the heaviest-weighted components in the sector, apparel is set to improve at 1.3%, below the 7.3% result posted in January 2015. L Brands has the strongest estimate in this group at 2.2%. On the flip side, Zumiez and Cato are facing the most difficult year-ago SSS comparison and have weak SSS estimates in the group at -9.7% SSS and -2.0%, respectively.

January marks the last month of the retail industry’s fourth quarter and we have received significant numbers of negative guidance for that period. Consequently, analysts have been lowering fourth quarter comp estimates. Our Thomson Reuters Quarterly Same Store Sales Index, which consists of 83 retailers, is expected to post 1.1% growth for Q4 (vs. 2.8% in Q4 2015).

Exhibit 1.  January 2015 SSS estimates

Source: I/B/E/S estimates.  Note: Aggregate mean data is revenue weighted.

Exhibit 2.  L Brands is on Top, While Zumiez Is Expected to Post the Weakest SSS

Source: I/B/E/S estimates.