It's spring cleaning in the summertime for retailers right now and profit taking time for investors in retail stocks (it would seem.) From what I'm hearing, the disappointing sales we saw today from Children's Placemay be setting the tone when it comes to retail sales results. Same store sales declined 4% in June coming in below expectations. CEO Ezrah Dabah cited continued declines in mall traffic--NOT the weather, NOT high gas prices, NOT inventory management issues--for causing sales to fall off at the start of the summer.
Given that we're seeing a customer base that has been dealing with higher gas prices for awhile now and consumers who aren't confused as to what they should be purchasing due to weather shifts, the month of June may provide some indication of how consumer spending and retail strength is trending.
Of course, there are also a number of executives at the top of retail firms who will tell you to write off the entire summer and not pay attention to comps. After all, June, July and August same store sales are really just laying the ground work for "Back to School" sales. Stores are looking beyond these summer months toward the next full-price selling season which will be the all-important back to school sales period. With that in mind, retailers are prepping the floors by trying to clear out inventory via markdowns.
A number of retail industry investors that I've spoken with have been closely watching store inventory levels and low levels of mall traffic. Bottom line: they are worried that the expected-to-be-weak same store sales results that we'll see this Thursday may be even worse than estimated. This means that already low expectations may see even more disappointing results from apparel companies.
Brean Murray, Carret Analyst Eric Beder is keeping his eyes trained on margins not comps due to gauge just how retailers are faring during this weak summer season. THIS IS A KEY POINT: Beder says that he's looking at June as a test of the strength of corporate management. Don't be fooled by some positive same store sales results from otherwise weak retailers: "Solid companies, which have been aggressively limited their inventory exposure and quickly selling off fashion losers will have less product exposure and, potentially the ability to inject some level of limited full margin newness," compare that to some poorly controlled chains that will be "forced to aggressively clear out product, which may lead to positive same store sales, but material margin declines." He's positive on: Wet Seal (exp. comps of +1-3%) and Aeropostale (exp. comps of +2-4%.)
Specialty Retail Analyst Brian Tunick of J.P. Morgan is also honing in on inventory/sales growth. The retailers that came into the quarter with high inventory/sales growth ratios include Aeropostale, Limited, Talbots,Citi Trends,Zale,Tween Brands and Ann Taylor. The names with the most relative "fear" when it comes to June comps are New York & Company, Zales, Childrens Place and Charlotte Russe. Tunick differs from consensus on two companies: Abercrombie & Fitch consensus is down 3%, JP Morgan says 7%. Pacific Sunware is expected to be up 3%, JP Morgan says up 5%.
The names that I'm most interested in watching are Macy's , Target ,Wal-Mart and the department stores. More on the Macy's buyout rumors and Target's unexpected stock price runup over the past week. Keep an eye on this blog for more inside scoop this week.
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