June proves to be an even more disappointing month for retailers than analysts anticipated, with same-store sales eking out only a tiny 0.1% advance.
Analysts and investors had braced themselves for what they expected to be the weakest growth in same-store sales posted by retailers in nearly three years in June. What they got was even worse than that: the news that the Same Store Sales Index rose only 0.1% in June over year-earlier levels, well below the 0.5% final estimate calculated just after the end of the month and before the Fourth of July holiday. More than two-thirds of retailers in the index announced same-store sales for June that fell short of analysts’ expectations, citing everything from unfavorable exchange rates to penny-pinching tourists. Excluding the Drug Store sector (and one of the worst-performing retailers, Walgreen (WAG.N) improved the picture somewhat, leaving the index with a 2.5% gain, very narrowly higher than the 2.4% final forecast.
But whichever way you choose to analyze these results, it’s hard to walk away from the numbers without feeling that consumers are starting to tighten their purse strings. The Quarterly Same Store Index, which consists of 82 retailers rather than the 16 in our monthly index, now expects to post growth of only 2.1% in SSS for the second quarter, while analysts predict it will rise only 1.6% in the third quarter and 1.7% in the fourth quarter. So far this year, retailers have seen SSS grow at an average rate of 4.4% — a relatively healthy clip. But it’s slower than the 5.4% average seen in 2011 as a whole, and if analysts are correct in their projections, it’s likely to fall during the second half of 2012.
A handful of retailers did manage to beat analysts’ expectations when they announced their June SSS results. TJX Co. (TJX.N) had been expected to report a gain of 2.4% in June sales over year-earlier levels, but astonished analysts by announcing a 7% gain, even more impressive than the 5% jump in SSS it reported in June 2011. Perhaps not surprisingly, the company now says it expects to report higher earnings for the quarter, as does Ross Stores (ROST.O), which also reported a 7% gain in June SSS, compared to a forecast of 4.8% and a year-earlier figure of 5%. Other apparel companies followed Ross’s lead, with Limited Stores (LTD.N) announcing a 7% jump in SSS, far better than the 2.4% estimate by analysts. Yet again, the latter benefited from its ownership of the Victoria’s Secret brand, which saw SSS soar another 11%. Overall, the Apparel sector was the strongest across the index’s retail universe, posting SSS growth of 4.2% in June, well above the final estimate of 2.5%. As usual, it fared still better once Gap (GPS.N) is removed from the equation: the June average SSS rises to 6% without Gap, better than the 3.4% predicted gain. Gap itself reported that same-store sales were flat in June, slightly weaker than the 0.1% gain analysts had predicted.
As many retailers commented, the strength in the dollar appeared to weigh on sales across the sector. Gap’s international division was its weakest: SSS plunged 14% in June. In the Discount sector, Costco (COST.O) attributed some of its underwhelming June SSS gain of 3% (compared to a final forecast of 3.7%) to the impact of the dollar. Excluding the dollar, Costco would have done better than expected, posting a 5% gain in SSS in local currency terms, better than the 4.5% advance that analysts had forecast. Macy’s (M.N) surprised analysts by reporting SSS that fell short of expectations, rising only 1.2%. The company’s executives appeared unruffled by the meager gain in June sales, focusing instead on the opening of what they billed as “the first phase of the largest women’s shoe department in the world.”
Luxury retailers continue to post impressive advances in same store sales, with both JW Nordstrom (JWN.N) and Saks (SKS.N) beating SSS estimates by posting gains for June of 8.1% and 6.0%, respectively. The question remains, however, whether the lower spending by tourists remarked on by Macy’s will take a toll on sales at upscale retailers like these in the months to come. If foreign shoppers – known for their expensive tastes and willingness to shop till they drop when in the United States – are cutting back on their travel or spending, this could emerge as a headwind for both Nordstrom and Saks.
As anticipated, the teen retailers, as a group, posted SSS gains that were weaker than expected, with even Zumiez (ZUMZ.O) falling slightly short of analysts’ expectations. While Zumiez still posted the single biggest jump in SSS among the companies in our monthly index, announcing an 8.2% gain in same-store sales, it was slightly less than the 8.4% final estimate by analysts. Both Zumiez and Victoria’s Secret appear to have mastered the art of keeping the merchandise in their stores fresh, appealing and competitively priced, thus keeping cash registers ringing. Wet Seal (WTSLA.O) also disappointed, but more dramatically: while analysts had called for a 7.7% decline in SSS, the actual result was a decline of 9%. Another gloomy result came from Walgreen, which announced a worse-than-expected 10% plunge in SSS for June, thanks in part to an increase in the number of generic drugs released onto the market in June.
Not surprisingly, the Labor Department announced early this morning that the unemployment rate in June remained unchanged at 8.2% for the second month in a row, while the created only 80,000 new jobs nationwide. Historically, when unemployment is high, consumer confidence remains low. An improvement in the labor market could help boost consumer confidence – and thus retail sales — and generate further economic growth as we move into the second half of the year.
For more on analysts’ changing views of Retail Sales, please watch this interview with analyst Jharonne Martis.
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