No Turn On Red

The stimulus checks have been (presumably) spent, back to school shopping is underway, and the retail sales numbers for July are in and they are, well, pretty ugly. A lot of retailers posting negative same-store-sales numbers for the month, many of them posting numbers that fell below Wall Street’s expectations. Wall Street is responding - as of 12:30, the S&P Retail Index is down around $7.

The negative results are hitting all segments of retailers - from department stores to the mall, teen retailers to mass market merchandisers. Wal-Mart posted a positive sales increase of 3.0%, but that is less than the 3.5% increase that Wall Street was looking for. Target saw same store sales drop 1.2% in the month of July and warn that August isn’t going to be much better. JCPeneny’s sales dropped 6.5% but raised their Q2 guidance “due to better than expected sell-through of promotionally priced merchandise and continued expense management measures.” Kohl’s saw a steep 10.4 drop in same store sales in the month.

Gap saw negative numbers across all brands - Old Navy down 16%, Banana Republic down 8%, and Gap North America down 6%. When are they going to spin off the Old Navy brand, sell it, and let someone else deal with the turnaround?

Teen retailers aren’t seeing the Back to School numbers they hoped for with American Eagle down 7%, PacSun was down 4%, Abercrombie & Fitch (as a company) was down 7% (with only A&F proper posting flat numbers, up 1% for the month. Hollister was down 11% - blowing away the 4.1% decrease expected by analysts), but Aeropostale saw sales jump 13%.

More coverage from CNN/Money, Forbes, and Marketwatch.

Reminder, all of July’s numbers are available to analyze over at our partner site, Retail Numbers.

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As always, I’m looking at a ton of e-commerce sites lately. Decided to run through some of the landing pages that I am seeing around the web right now to show off the variety of promotions and marketing going on. Though it’s not as denim-centric as it was two years ago, it’s obvious denim is still the #1 push in the back to school season.

Continue reading this entry

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Another mixed month for retail sales.  While some retailers rebounded and look to go into Back to School on a positive note, it was another dark month for some mall and teen retailers.

Wal-Mart beat expectations with a 5.8% increase in June (showing 6.1% increase at their US name-brand stores and a 4.6% increase at their Sam’s Club locations). Target ended up in positive territory with a 0.4% uptick in same store sales. Costco showed a 9% increase, Kohl’s beat estimates with a 2.3% increase, and even mall retailer Aeropostale showed gains with a 12% increase in June.

The month was not as kind to mall and teel retailers such as Gap (company down 7%), Abercrombie (down 3%), and American Eagle (down 11%).

June’s numbers have been posted to Retail Numbers, which allows you to chart and track the retail industry monthly same-store sales.

More coverage from Fox Business and the Associated Press.

Photo above from Flickr user James@mannequindisplay. com, used under Creative Commons.

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Just two quick links for today:

In regards to today’s earlier entry about the perils of catching a shoplifter, I came across another recent story on the same topic. Last week, a shoplifter tried to stab a Home Depot security guard with a screwdriver he just stole.

Then there’s an article from the Billings Gazette about how retailers and others are recruiting teenagers to fill Summer jobs. Good look at a local American Eagle Outfitters location and how the manager there goes about recruiting new employees, as well as some of the methods used by others to fill other, non-retail, jobs.

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What a quarter these guys had:

American Eagle Outfitters, Inc. (NASDAQ:AEOS) today announced that earnings for the second quarter ended July 29, 2006 increased 27% to $0.47 per diluted share from $0.37 per diluted share for the quarter ended July 30, 2005. Included in the second quarter 2006 earnings per diluted share of $0.47 is $0.01 per share of stock option expense, which was not included last year. Net income for the fiscal 2006 second quarter increased to $72.1 million from $58.0 million for the same period last year.

“American Eagle delivered solid top-line growth, outstanding profitability and strong cash flow for the second quarter of 2006,” said CEO Jim O’Donnell. “I am very pleased with this performance, especially in light of the investments we are making in our future growth initiatives, such as our real estate strategy, aerie intimates sub-brand and our new MARTIN + OSA concept. These results are clearly the by-product of a strong and successful team effort across our organization.”

(See full press release here.)

A record earnings quarter for American Eagle and this doesn’t look like a blip - it looks like they are poised for a great second half of 2006.

The key to their success this quarter has really been their mixture of trend-right and basic fashion. They adknowledge that not everyone is ready to go after the latest trends, and their assortment has reflected this. They refer to their denim assortment as over “90% new” in style and washes. The AMC Movie Ticket promotion was a great opportunity to get people in the door and into the dressing room. They seem to be very pleased with how that worked out.

Growth in sales, growth in profit, growth in bottom line performance, growth in transactions per store. They are nailing almost everything that they need to nail. This store is going to be a power house going into the rest of the year.

Some more coverage from The Street and the Motley Fool.

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In case you didn’t get the BTS memo, the trends for this season are as follows:

You may finish shopping now.

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First in maybe a weekly column? Hopefully.

Some quick retail notes for this lazy Sunday:

I hear that the new Abrecrombie & Fitch Back To School Preview floorset is this week. The seasonal transition at A&F is very impressive and seamless. Sales will be strong but it will be tough for A&F to compete with themselves and the high comps they had with BTS 2005 (June, July & August had comps of 38%, 22% & 24% in 2005). Look for solid increases in the gross margin with decreases in markdowns and sales for this upcoming season. This will be another great season for A&F.

Two quickies from the Loss Prevention blog: Cop kills man in grocery store shoplifting and Kroger manager jumps on hood of shoplifter’s car. I have nothing to say about the unfortunate shooting, but I’m sure Kroger’s corporate management doesn’t look fondly on employees jumping on cars to apprehend shoplifters. There has to be more to the story than that.

Last week, the Chicago Sun-Times ran an article showing where some of the former Sears executives have gone: Life After Sears.

And finally, a story from Starbucks showing how a good idea from worker, combined with the support of co-workers, the corporate office and customers can lead to a very positive outcome: Starbucks worker brews plan to get java to GIs in Afghanistan. A Starbucks employee from Maine organized a campaign where her co-workers donated their weekly bag of coffee they recieve as a benefit and, with corporate approval, solicited donations from customers. The result? 106 pounds of coffee sent to troops in Afghanistan. [via Starbucks Gossip]

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The May comp store numbers for the retail industry:

In the mall: Abercrombie up 3.0, Aeropostale down 1.1, American Eagle up 11.0, Ann Taylor up 12.0 , Hot Topic down 6.0, Limited Brands up 7.0, and Pacific Sunwear down 2.6. Gap as a company was down 6.0, however the break down between companies is interesting. Gap North America was down 5.0, Gap International is down 13.0, Old Navy was down 8.0, but Banana Republic is starting to show signs of a turnaround with a 3.0 positive comp.

In the department store sector: Dillard’s up 3.0, Federated up 9.2, JC Penny up 11.1, Kohl’s up 3.1, Nordstrom up 7.8, and Saks up 5.7.

In the battle of Target v. Wal-Mart and warehouse stores v. warehouse stores, Target was up 5.7 & Wal-Mart was up 2.0. Sam’s Club was up 4.0 while BJ’s Wholesale was up 4.2 and Costco was up 10.0.

Generally a pretty positive month across the board. Gap continues to struggle and Kohl’s is curiously one of the few companies with positive marks that didn’t beat investor estimates. Pacific Sunwear was down 2.6 after a fantastic April in which they posted a 14.0 positive comp.

Minyanville posts a good roundup of the May numbers, covering some retailers I didn’t cover here.

Interesting month and a good start to the Summer season in retail.

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The numbers from Abercrombie & Fitch: revenue up 20%, comp sales up 6% and net profit up 39%, beating Wall Street Estimates.

When digging into the numbers, some very interesting trends within the different brands: A&F comps were down 6%, abercrombie comps were up 30% and Hollister comps were up 13%. A&F menswear comps decreased by low single digits while womens apparel comp decrease was in the mid single digits. They didn’t talk specifics about RUEHL, except to say that it is performing well in comp and net sales perspective.

Some quick key points from the call that I found interested are that they seem to be that they are reducing the amount of promotional events, reducing the amount of clearance cycles, reducing floor space devoted to clearance, putting $50 million back into the stores in capital improvements this year. These are all geared towards improving the gross margin, which came in at an astounding 65.4%.

The thing that is amazing me about A&F is that they are able to get away with all of this. In such a tight retail market, they are now in their twentieth month of overall comp store gains (minus a slight hiccup this March). They have created the ultimate lifestyle destination brand and they are able to get away with charging top dollar for it. They have played with pricing, tweaking the price points at RUEHL and Hollister to be more competitive (they say they are pricing Hollister to be more competitive with American Eagle and they have brought the price points of RUEHL to an average of 12% more than A&F, down from the original 30% increase over the average A&F price point).

I do like their honesty when talking about the decline in A&F womens comps they said “I think we simply could have done better in that business. I don’t think that we flowed units and fashion as aggressively as we might have.” The decline, they say, is out of line with the womens business at the other brands. It’s good to see a retailer own up to a mistake like that and look for ways to improve.

Another good quarter for company as a whole. Going into the Back to School season, the company has some very impressive comp numbers to contend with (May, June, July & August of 2005 had comps of 29%, 38%, 22% and 24% companywide) which will make the numbers look flat or soft. Their challenge for the rest of 2006 is to improve upon inventory management and pricing to drive the gross margin. However, if Abercrombie & Fitch is able to reasonably build on these comp numbers, look for this to continue to be one of the hottest retailers going into the second half of the year.

More coverage of the Q1 results from Businessweek and Bizjournals.

Transcript of the conference call from Retail Stock Blog.

Full SEC form 8-k filing from Yahoo.

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After fantastic 2005, teen retailer American Eagle is off to a great start to 2006, continuing it’s upward trend, beating Wall Street estimates and putting up some solid numbers for Q1: net sales increase of 14%, comp sales up 9% and net profits up 16%.

CEO Jim O’Donnell attributes the success of the quarter to “successful merchandising and design, as well as the solid execution across our company.” Initiatives undertaken in 2005, such as the AE “All Access Pass” customer loyalty/reward program seem to be paying off in 2006 with AE President Susan McGalla saying that the “new enrollments are exceeding our expectations and the first two redemption periods were encouraging.”

As far as the merchandise itself, McGall goes on to say that for the Women’s end of the spectrum, “comps were best in graphic tees, tanks, shorts, capris, jeans, flip-flops and intimates, while women’s skirts, wovens and accessories were below our expectations.” Adding, “Men’s produced a positive low double digit comp with the strongest results in graphic tees, jeans, shorts, polos, flip-flops and boxers. Within men’s, we continued to see a planned downtrend in woven shirts.”

Accessories will be helped by the future launch of the AE sub-brand, aerie. aerie is the new intimates sub-brand from AE, with all stores having a full aerie store-in-a-store concept, launching in September. Results from the initial “bra test” in 100 stores have been encouraging, with a lot of positive feedback regarding merchandise assortment and trends in this area. McGalla says, “the number one bra that we thought was going to be number one wasn’t number one.”

As a male in his mid-twenties, I do not know much about an intimates department geared towards girls age 15-25. But I do know that AE seems to be swinging for the fences lately and I have no doubt that this launch will prove successful, turning into a gold mine for AE.

More about the aerie brand from this February article in WWD: American Eagle’s Strategy for ‘aerie’ intimates.

The other concept that they are excited about is the Martin + Osa store concept, debuting in four cities this Fall. CEO O’Donell describes it as “a unique, specialty lifestyle brand, targeting 25-40 year olds.” With merchandise that is geared towards an older demographic in style, design and price, I think that this store will wind up doing extremely well for AE. You have an entire generation of shoppers who are growing up and outgrowing AE, now get them to stick with you through the years. At the same time that AE is building/developing a lifestyle brand, they are also branding these customers for life. Smart move and I am excited to see this shop concept.

More information on the Martin + Osa concept from WWD, “Martin + Osa Mall Bound: Signs First Four Leases“.

The last area that AE repeatedly touched on is the improvement in sales in remodel stores. Remodel stores are gaining square footage through re-design and expansion, in some cases they are relocating within the same mall. In this area, AE did this remodel last year and the payoff is huge. The new store layout is larger, spacious, inviting, and fun to shop - it is a complete turnaround from the cramp quarters they once occupied.

To this regard, AE says that the average store profitability jumps 70% in the first year after remodel - 70% ! This is fantastic news for investors, as AE looks to remodel 68 stores this year alone. Retail Design Diva had a fantastic article on this a few months ago: You Know Improved Store Design Helps Increase Sales, But Would You Believe 46%? As the trend over the past few years was to reduce visual merchandising and the importance of store design, it is nice to see a company spend so aggressively in this area and be so vocal about their success. AE has even upped their 2006 capital improvement estimates from $175m to over $215m.

It is a good time to be American Eagle. They are poised for a very good year and will be a mall retailer to look out for going through the rest of 2006. Look for them to lead the way through the mall with their commitments to good design, value and aggressively seeking out opportunities to develop itself as a lifestyle brand.

More information on Q1 results here and here

Full transcript of the conference call here from Seeking Alpha.

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