Trader Talk

Retailers: Lean and Mean

U.S. stock futures up, Europe at the highs for the session, the dollar weaker, 10-year bond prices are at a 5 week high.  August options expiration today.

Elsewhere, retailers are lean and mean.

1) Ann Taylor reported earnings and revenues in line with expectations. 

Though they are expecting sales to remain under pressure for the year, they do expect comparable store sales to improve in the second half over the first half. 

As with most retailers, they are seeing gross margin improvement thanks to better inventory management.  How much better?  Total inventory per square foot at the end of Q2 of 2009 was down 28 percent versus a year-ago.

2) Aeropostale is up 3 percent after Q2 earnings beat estimates on stronger sales and higher gross margins. The teen apparel chain, one of the few retailers to see sales growth recently, also reported a 12 percent rise in same-store sales for the quarter.

Guidance for the current quarter is also ahead of estimates ($0.76-$0.78 vs. $0.76 est.).

3) Gap is also lean and mean, which also helped them improving their gross margins.  They beat earnings consensus, though just by a penny.  Comp store sales were down only 8 percent, a small improvement over the 10 percent in the first quarter.

As with Ann Taylor, inventory levels per square foot continue to drop: down 14 percent.

Bottom line:  retailers are doing a terrific job managing inventories and costs, but earnings growth from here on out will be largely contingent on sales growth.

Speaking of Gap, most traders on the floor of the NYSE are wearing Gap jeans today, part of a promotion from Gap--one of the few times they have relaxed the dress code at the NYSE. 

I'll talk with NYSE chief Duncan Niederauer about that at the open.



Questions?  Comments?