As we had been warning was likely, an early Easter – along with a Mother’s Day holiday that is later than usual – combined to cast a chill on same-store sales at retailers across the board during the month of April. Even the weather itself conspired against retailers, as cool and rainy weather kept shoppers out of the malls and dampened their interest in spring and summer apparel. As a result, more than half of the companies in our retailing index – a total of 53% — reported worse-than-expected SSS in April, significantly above the historic average of 45%.
Indeed, US retailers struggled to post a 2.2% increase in same-store sales last month, according to the Thomson Reuters Same Store Sales Index. That SSS gain was a weaker performance even than the final estimate of earlier this week had warned. (That estimate had signaled that a SSS gain of only 3% was likely.) It’s also the weakest advance since October 2010, when the index rose only 2.1%. Adding in the results from the Drug Stores group makes the results look gloomier still; the index’s gain was a paltry 0.8% in April.
To get a fair reading of sales growth for both March and April – since Easter-related spending was confined to only one of these two months this year – we have combined their readings and calculated an average. For the two-month period, retailers reported a 2.5% gain in same-store sales; that is still a sharp drop from the 5.4% growth seen in the same period of last year. Excluding the Drug Stores group from the mix, however, makes the picture somewhat brighter: the forecast growth in the index rises to 4.5%, also a drop from the 6.4% growth recorded a year earlier, but within the range of SSS gains of 3% to 5% recorded throughout 2011.
Exhibit 1. Less-Than-Average Upside Surprises, And More-Than-Average Downside Surprises
Source: I/B/E/S estimates.
Macy’s and Target surprised analysts by missing expectations after a string of reporting much stronger-than-expected SSS figures. On the bright side, a handful of companies not only posted strong SSS gains but beat analysts’ estimates by wide margins. One of the biggest SSS surprises came from Zumiez, which reported a 10.1% increase in SSS, smashing through its final estimate of 6.8%. Moreover, based on its proprietary StarMine SmartEstimate score, Zumiez seems likely to post higher-than-expected earnings as well, for its fiscal first quarter of 2012. (See Exhibit 2). On the flip side, the StarMine models suggest Stein Mart’s results will prove to be a larger disappointment than analysts currently expect.
EXHIBIT 2. APRIL SSS ESTIMATE, QUARTERLY EARNINGS: Q1 2012 EPS ESTIMATE VS. Q1 2012 SMARTESTIMATE
Source: StarMine Professional and Thomson One Investment Management.
Only eight retailers out of 20 beat analysts’ SSS expectations. Wet Seal posted the weakest SSS showing in our retail universe, as the teen retailer struggled and failed to post a gain for the quarter and ended by reporting that SSS slumped 9.6% in April, more than the 9% decline that analysts had anticipated. However, the teen retailing group as a whole saw SSS decrease 0.9% in April, a slightly better result than the 1.5% slide that analysts had forecast. Zumiez, of course, was the star of the group, but The Buckle also posted a small gain; its 1% SSS advance was a tiny improvement over the analysts’ forecasts of a 0.9% gain.
Excluding Gap, the Apparel sector was the index’s strongest performer last month, reporting a jump of 5.3% in SSS, well above the final estimate of 3.5%. Adding Gap’s results to the mix (the retailer is the sector’s heaviest-weighted component) dimmed the group’s luster slightly: the average SSS increase dropped to 3.2%. That’s still better than the 2.2% gain analysts had been expecting. Gap, Inc. saw a 2.0% decline in same-store sales, a sharp contrast to the last two months in which it has seen stellar SSS results.
Other apparel companies with impressive gains in SSS in April included discount clothing chains TJX Companies, and Ross Stores, which reported gains of 7% and 6%, respectively. The results prompted both retailers to increase their first-quarter earnings guidance for the period ending April 2012. Similarly, Limited Brands reported a 6.0% advance in SSS that appears even more impressive given its tough year-earlier comparison. (It reported a remarkable 20.0% surge in SSS for April 2011.) The company’s Victoria’s Secret division remains a major contributor to its overall results; the division reported that its own SSS jumped 8%, well above the forecasted 5.3% increase.
The Discount sector recorded a 2.5% advance in SSS in April, well below the final estimate of a 3.9% increase. (See Exhibit 3 for more details.) Within that group, Target missed expectations, posting a 1.1% gain in SSS; a year earlier, its SSS had risen by 13.1%. Costco fared worse than expected, reporting a gain in SSS of 4%, below analysts’ expectations of a 5.1% increase; the company attributed the worse-than-expected performance to the change in value of the dollar relative to foreign currencies, which more than offset the positive impact of higher gasoline prices on its SSS. The weakest member of this group was Fred’s, which reported a decline of 0.3% in SSS that was significantly below the 0.6% gain that analysts had been expecting.
EXHIBIT 3. APRIL SSS RESULTS VS. EXPECTATIONS
Source: I/B/E/S estimates.
*Note: Q1 2012 blended mean is a combination of Q1 estimates and actual SSS results.
The retailers in the Department Store sector of the index posted a 0.4% advance in SSS for April, below the analysts’ final estimate of 1.6%. Retailers catering to the most affluent consumers continued to outperform their peers; JW Nordstrom and Saks reported strong April SSS gains of 7.1% and 2%, respectively. Macy’s reported that its SSS advanced 1.2%, missing analysts’ forecasts of 1.9%. Meanwhile, Kohl’s reported a 3.5% decline in SSS, a larger drop than the 1.0% decline that analysts had forecast.
With Mother’s Day falling on May 13 this year, a week later than it did last year, retailers can at least look forward to some upside in May, to the extent that their product lines include traditional gift items such as clothing, cosmetics and perfumes.
- For more on analysts’ changing views of April Sales, please watch this interview with analyst Jharonne Martis.
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