We expect retailers to post a 3.4% gain in same-store sales for March, nearly double the 1.8% advance recorded a year ago. Nearly all groups within the Same Store Sales Index appear likely to participate, the sole exception being the Drug Stores group. Excluding the latter, the index appears likely to record a 5.3% increase in same-store sales, well above the monthly same-store gains of 3% to 5% recorded throughout 2011.
Given that Easter falls on April 8 this year, two weeks earlier than it did in 2011, those March same-store sales seem likely to benefit from the impact of Easter-related spending. (For more insight into this Easter season, see this article in the Wall Street Journal.) Demand for the latest fashion trends is always strong in the weeks leading up to Easter, a time when retailers are still selling the season’s must-have items at full price. The fact that consumers still appear to be willing to buy the latest fashion items now rather than waiting for a discount later, despite the blow to their wallets from higher gasoline prices, is an encouraging sign for the retail industry. March’s weather, significantly warmer than usual throughout much of the United States, boosted pent-up demand for the spring must-have clothing items early in the season, and sent mall traffic higher throughout the month. Due to the shift in the Easter holiday, we expect retailers to post some strong March results, particularly when compared with the losses in same-store sales reported a year ago. Easter is the third-largest buying holiday for retailers. In addition to the traditional Easter eggs and holiday-related groceries, the end of winter and the arrival of warmer weather make consumers eager to update their closets and acquire new clothes that reflect the latest styles before gathering for the holidays with family and friends.
Exhibit 1. March Sales were bolstered by Easter, Warm Weather, Spring Break and Pent-Up Demand
Source: I/B/E/S estimates. Note: Aggregate mean data is revenue weighted.
Analysts polled by Refinitiv expect most sectors of the retail industry to post positive March SSS, with discounters recording the biggest gain – an anticipated 6.0% jump in same-store sales. The Apparel sector seems likely to be the next most-robust group among the retailers, with analysts forecasting a 4.9% increase in same-store sales. The Department stores follow, with analysts estimating they will record a 4.2% gain. Again, a few standouts that have managed to significantly outperform both their peers and the industry as a whole, including Costco, Saks, Gap Inc., and Zumiez (See exhibit 2 for details).
Gap Inc. has been a drag on the apparel sector for months but finally seems to be pulling itself out of the doldrums, thanks in part to the launch of a new line of colored jeans (just in time for Easter!), which shoppers have snatched up, as well as the introduction of a range of Diane von Furstenberg designs sold at BabyGap and GapKids stores. Meanwhile, the company’s Banana Republic division launched a spring collection inspired by Mad Men, just in time for the television show’s much-anticipated return to the airwaves in late March. The company’s stock rallied during the first quarter, thanks to a better-than-expected sales performance.
Exhibit 2. Zumiez Is on Top, While Wet Seal Is Expected to Post the Weakest Negative SSS
Source: I/B/E/S estimates.
The Easter season has sales hopping along among members of the Discount sector: Easter-themed décor items, candy, and chocolate eggs were big sellers in March. The forecast of growth of 6.0% growth in same-store sales is significantly higher than the 3.8% SSS gain the group posted in March 2011. Within the group, analysts expect Costco to turn in one of the strongest comparative performances by recording at 6.7% jump in SSS. (That gain, however impressive in absolute terms, will still fall well short of its 13% jump in March of 2011.) Excluding the impact of higher gasoline prices on sales, Costco’s likely SSS advance falls to 5.6%. That is still ahead of Target, however; analysts expect the rival discounter to post a gain of 5.4% in same-store sales, with Fred’s bringing up the rear, with a 0.4% advance.
Analysts expect Department Stores to post a 4.2% increase in same-store sales for March, a stronger showing of growth than was seen last March, when SSS fell by 0.5%. High-end stores continue to demonstrate the most impressive gains in same-store sales, with Saks expected to report a 6.1% gain (compared to a year-earlier advance of 11.1%) and JW Nordstrom to record an advance of 5.8% (slightly above its year-earlier gain of 5.1%). Macy’s winning streak seems likely to continue: analysts believe the department store chain will register a gain in SSS of 4.8% for March 2012, well north of the 0.9% advance recorded in March 2011. On the flip side, Kohl’s and Stage Stores are struggling; analysts expect them to register the weakest results within this group and to post a gain of only 2.1% and 2.0% in SSS for the month.
Given that consumers went shopping for the latest fashion trends – including big, bold colors in women’s clothing – during March, we expect the Apparel sector to post some strong results and some of the healthiest comps within the industry – a big turnaround from the same-store sales declines recorded a year ago. The group as a whole is likely to report a 4.9% gain in same-store sales, compared to the 0.8% fall in SSS recorded in March 2011. In contrast to recent history, last month Gap Inc. was one of the strongest members of the group rather than one of the weakest, with its likely performance giving the sector a boost instead of detracting from the overall performance. Excluding Gap, which analysts expect to report a SSS gain of 5.4% and which is one of the heaviest-weighted components in the sector, the apparel group is likely to see an advance in same-store sales of 4.7%, still beating the more meager 3.0% gain posted in March 2011. This is Gap’s first positive SSS estimate since December 2010.
Winners among apparel retailers include The TJX Companies, Inc., and Ross Stores, both of which are likely to see year-ago declines in SSS become gains when the results for March are unveiled. TJX is expected to record a gain of 5.3% while analysts expect Ross Stores to post an advance of 4.6%, compared to declines of 1% for both companies in March 2011. On the other hand, Limited Brands will find it hard to beat last year’s 14% jump in same-store sales for March; analysts project the retailer will register SSS growth of 4.4% for the month just ended. Its Victoria’s Secret division remains the jewel in its crown: there, we expect same-store sales to climb 5.7%. Stein Mart is the weakest player in this group, but its forecast 2.0% growth in same-store sales will still be a better performance than the 3.9% decline it posted for March 2011.
March included Spring Break, during which teenagers flocked to the malls and to stores like Zumiez and The Buckle. As a result, we expect the Teen Apparel sector to post some healthy results, even if they fall short of the sizeable gains in same-store sales reported a year ago. The group as a whole is likely to report a SSS increase of only 2.9%, compared to the 7.1% level recorded in March 2011. Wet Seal weighs on the sector-wide forecast; analysts believe the company is likely to see SSS fall by 6%. On the flip side, Zumiez is enjoying the strongest comp expectations within the group, with analysts projecting an 8.9% advance. Moreover, based on our proprietary StarMine SmartEstimate score, Zumiez is likely to post earnings for the first quarter of 2012 that are higher than the current consensus estimate. (See Exhibit 3 for more details.) The Buckle is likely to come close to matching its March 2011 gain of 8.4% in SSS with a projected jump of 8% in SSS for the just-ended month.
Exhibit 3. March SSS Estimate, Quarterly Earnings: Q1 2012 EPS Estimate vs. Q1 2012 SmartEstimate
Source: StarMine Professional and Thomson One Investment Management.
Drug retailers remain a drag on the overall universe of retailers. Walgreens is expected to report a decline of 4.9% in same-store sales in March, in contrast to the 3% gain it posted for March 2011; this is the drugstore chain’s third month running of SSS declines after a 14-month long winning streak during which it posted steady gains. The company blamed the downturn on the fact that Walgreens is no longer part of the Express Scripts network. The milder weather may have been good news for those prone to colds and the flu, but it hurt Walgreens, which saw a slump in demand for medicines to treat those ailments.
Retailers have already advised analysts and investors that while March’s results will show strong gains in SSS over year-earlier levels, comparisons are likely to weaken in April, since Easter won’t be there to buoy same-store sales for that period. So, as we have noted previously, to get a fair reading of March and April, we will have to combine the readings from both months and obtain an average. Only then will we be able to obtain a clear picture of how well retailers performed during the Easter period and understand what trends were taking shape.
While higher gasoline prices continue to put pressure on consumer’s discretionary income, the Refinitiv/University of Michigan Survey of Consumers gained ground in March on news of better news from the labor market. “Consumer confidence edged upward as more favorable income and job trends offset rising gas prices,” Richard Curtin, chief economist for the Survey of Consumers commented in a report published at the end of March. (Exhibit 4, below, displays the recent trend in the Survey of Consumers.) Economists expect that the next monthly jobs market report from the Department of Labor will show that the unemployment rate remained at 8.3% in March, unchanged for the third month in a row. This sign of a stability in the labor market could help boost consumer confidence – and thus retail sales — and generate further economic growth as we move further into 2012.
Exhibit 4. The Refinitiv/University of Michigan Survey of Consumers
Source: Datastream.
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