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November 4, 2015

October Retail Sales Expected To Struggle, Affected By Warm Weather

by Jharonne Martis.

Warm October weather is great for walks in the park, driving through fields of fall color, harvest fairs and football – but not so great for driving shoppers indoors to the malls. The Thomson Reuters Same Store Sales Index for October 2015 is expected to show a small gain of 0.3% and a nearly-flat increase of 0.1% excluding drug stores.

This compares unfavorably with an actual rise in October 2014 of 3.1% overall and 2.5% ex-drug. A gain of at least 3% is considered a sign of a healthy retail sector.

A cool October gets customers thinking of fall-related merchandise such as sweaters, boots and outerwear, but this year, the temperatures stayed up. What’s more, a stronger U.S. dollar is hurting retailers with foreign sales and affecting tourism-related sales from visitors to the U.S.

Retailers are also facing difficult comparisons from a year ago. As a result, comparative October SSS results are almost flat. Teen retailer Zumiez is expected to post the weakest SSS results at -6.6%. Another mall store that is suffering from weak sales is Gap with a -0.3% SSS estimate.

Meanwhile, L Brands is on top with a 4.5% SSS estimate, followed by both Stein Mart and Cato at 2.0% SSS each. October marks the last month of the third quarter for retailers. They are warning us not to expect too much from their third quarter earnings results. To date, retailers issued negative guidance 56 times, vs. 13 positive.

Meanwhile, our Thomson Reuters Quarterly Same Store Sales Index, which consists of 83 retailers, is projected to post a 1.5% growth for Q3, slightly below last year’s 1.7% SSS growth.

Exhibit 1.  October 2015 SSS estimates

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

Sector woes

The Discount sector is facing one of the most difficult comparisons from a year ago. The group has a -0.5% SSS estimate, below the 3.9% pace set in October 2014. Costco has a -0.6% comp estimate in the group, below its 4.0% October 2014 result. The discounter is negatively affected by foreign exchange rates among other factors. Excluding the impact of gasoline sales, the Costco SSS figure rises significantly to 5.9%. Meanwhile, Fred’s has a 1.8% SSS estimate vs. a -1.4% posted in October 2014.

Analysts expect Apparel as a whole to report a 1.4% SSS, compared to the -0.5% gain in SSS recorded in October 2014. Excluding Gap, one of the heaviest-weighted components in the sector, the group is set to improve at 3.4%, above the 2.4% result posted in October 2014. L Brands has the strongest estimate in this group at 4.5%, and is helping the entire sector outperform last year’s result. Likewise, both Stein Mart and Cato Corp. are both expected to post healthy results at 2.0% SSS, respectively. On the flip side, Gap has the weakest SSS estimate in the group at -0.3% SSS vs. -3.0% comparison from 2014. Its Banana Republic Global division is expected to slide by -7.3% for October 2014. The outlook seems more optimistic at Old Navy Global, with a 3.9% SSS estimate.

Apparel stores catering to teens have the weakest estimates within the retail universe. Same store sales are expected to post a -4.4% comp for the sector. The Buckle is facing an easy -4.4% comparison from a year-ago and is expected to post -3.0% SSS, while Zumiez is expected to see a -6.6% SSS.

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