Retail Market Splitting High End, Low End
Gap, Aeroposatle lowers guidance ... the retail market is splitting into high end and lower end. The bifurcation of the retail market continues. I have noted that high end department stores have been doing fine...big gains in comparable store sales. But the lower end is hurting.
Gap , trading down 15 percent after the close, is the latest to confirm the trend, lowering full year guidance to $1.40-$1.50 from $1.88-$1.93. Two problems:
1) Higher costs. A 20 percent rise in costs (mostly cotton) could not be sufficiently offset with higher prices.
2) Poor sales. Same store sales fell at all three of its North American chains--Gap, Banana Republic and Old Navy.
Is this just a Gap story? No. Gap, like many retailers, have been pulling a neat trick for the last couple years. They grew their earnings as their revenues were generally declining. A neat trick, they did it by cutting costs--firing people, cutting advertising, lowering product costs.
Now there is no more room to lower costs.
Expect other companies to miss. They will blame a fashion miss, they will blame weather, they will blame gasoline.
Aeropostale has also lowered. Ross Stores,Children's Place, Advanced Auto,Zumis, and Williams Sonomaall provided either tepid guidance or guidance that was below consensus.
The bottom line: high end retailers said, "Let's do less discounting, because our customers will buy at full price." The low end said, "Our customers don't have any money, let's lower prices to drive sales."
But sales didn't increase much, and costs went up due to inflation. Double whammy. That means less margins.
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