Kids may be trying to get the last bit of fun out of summer, but school is starting soon – and it’s an important season for the retail industry’s third quarter. August marks the first month of the quarter, however, back to school shopping also continues in September. Students return to school, eye what their classmates are wearing, then buy the latest trends. Also, shoppers love to procrastinate until the last minute. Retail sales also often receive a lift from Labor Day promotions.
All this may help boost the Q3 2017 same store sales (SSS) cycle which consists of August, September and October. Currently, however, the Thomson Reuters SSS Index is looking at a 0.8% gain in Q3 2017, slightly below last year’s 1.0% result.
Who will make the back to school grade?
Exhibit 1: Strongest SSS Estimates for Q3 2017
Source: I/B/E/S data
Ulta Cosmetics consistently remains the top performer in our retail universe. Students like to make a lasting impression on the first day of school and, teenagers are expected to shop at Ulta Cosmetics for beauty essentials. Ulta has the highest SSS estimate for Q3 in our retail universe at 10.1% vs. 16.7% last year, followed by J. Jill.
Other winners include American Eagle’s Aerie division, which sells lingerie for girls. The division is facing difficult comparisons from last year when it posted an impressive 21%, and is now expected to post a 16% SSS. (In general, a 3.0% gain reflects healthy consumer spending.) Thus, 16% on top of a difficult comparison from last year is considered a robust performance, especially taking into consideration that other teen retailers haven’t been performing well. Aerie has also been praised for not photoshopping its ad pictures and teens love the denim sold by its parent company.
Among the strongest 15 SSS performers are Lululemon and TJX Companies. Although the athleisure trend has slowed down a bit, Lululemon has a 4.1% SSS vs. 7.0% last year. TJX is also projected to do well. The retailer is benefiting from the fact that value shopping is very popular among consumers worldwide right now.
Parents will also hit Children’s Place and Carters to shop for their little ones. Meanwhile, the college students will go to the home supply stores to decorate those dorm rooms. As students are moving to college, Home Depot and Lowe’s are getting a boost from organizational kits and are expected to post a 5.3% SSS, and 3.9%, respectively.
Who might need some extra credit?
Exhibit 2: Weakest SSS Estimates for Q3 2017
Source: I/B/E/S data
Q3 Weakness
Analysts polled by Thomson Reuters are bearish on Guess, Vince and The Buckle. Guess has the weakest SSS estimate in our universe at -8.1% SSS, below last year’s easy comparison of -4.9% SSS result. Meanwhile, department stores continue to experience weak traffic and sales. Once upon a time, parents flocked to the department stores as a one-stop shop to purchase back to school gear. Today, however, Sears, Macy’s, and JW Nordstrom’s full line stores are all expected to post negative SSS. Only JC Penney is expected to see a positive SSS at 0.2%, thanks to its Sephora division that is bringing millennials into the store.
Other weak retailers that are hurting include Hibbett Sporting Goods, Michael Kors and Gamestop. Michael Kors is expected to see a slight improvement from last year at -5.2% vs. -5.4% last year. Still, this is considerably below Coach’s 2.7% SSS. After a major store facelift, Coach has been doing a great job resonating to the millennials. What’s more, in order to regain their cache, both Kors and Coach have been pulling their merchandise from department stores. Yet, Coach has been pulling more merchandise. There is a clear downward trend in the total number of SKUs available at department stores, as Thomson Reuters discovered in a collaboration with StyleSage Co., which analyzes retailers, brands and products across the globe.
