Limbo!

All I can think about after this morning's retail same store sales release is doing the limbo... you know, the dance where the refrain is 'how low can you go?'

The numbers are miserable. Of all the companies I track, only two had positive comp store sales (comps): Wal-Mart (+2.4%) and Aeropostale (+1%)... and Aeorpostale's comp was below the expectation for +4%. The department stores had it rough, and the higher end stores were hit especially hard. Nordstrom managed to 'beat' expectations for a -12.5% comp by reporting -15.5%. Saks not only had a -16.6% comp, but said that even their (previously?) well-heeled shoppers weren't buying much if it wasn't on sale. That's saying something for a store that targets customers with an income in the top 5% demographic!

Reports today were filled with companies guiding down expectations prior to the release of Q3 earnings, which start next week. Two thoughts on this: first, if you didn't already realize that things have just been getting worse for the consumer you haven't been paying attention; and second, where the HECK have the Wall Street analysts been? I have to say, many times when I've met with those guys and company managements, I've been amazed at how much more I know about the companies and how they're executing in the stores than the headline analyst did. Scary. Get out and get into the malls, boys. It's eye opening! ::rant over::

Anyway, on the 'opps, we did it again... our earnings aren't going to make previously lowered expectations' list are:

• Nordstrom
• Macy's
• Kohl's
• JC Penney (within range if you include a real estate sale is NOT okay)
• American Eagle
• Pacific Sunwear
• Zumiez

Interestingly, the list of companies affirming guidance or raising guidance is as long, just from different sectors:

• BJ's Wholesale (gas helped a lot)
• Ross Stores
• TJX Companies
• Aeropostale (the only specialty retailer really performing)
• Hot Topic
• The Gap (low sales are okay if you can still make margins)

So what will be come of America's retailers? It's going to be ugly folks. To paraphrase, these are the times that try retailer's souls. My prediction is that within a few years we will have a major contraction in specialty retail. Folks like Abercrombie & Fitch will give up on some of their brand extentions like RUEHL that just aren't working. American Eagle will shutter Martin + Osa. Gap will have to shutter a lot of its retail space. Limited, it's been nice, but can you really make it? Chico's? Coldwater Creek? You're no longer growth businesses, and I'm not sure there's room enough for both of you in this new landscape.

The American consumer has rediscovered frugality, and this time it isn't a phase, it HAS to be religion. I'm just not sure there's a reason to own much beyond the discount stores until more of the pain has passed.

Who woulda guessed?

Here's a news flash, kids - trends continue to play out as expected. It’s all about consumables and discounting. Mall traffic and sales are weak, which shows clearly in comps for mall-based concepts. The consumer appears to be consolidating shopping trips to places like Wal-Mart and Costco that allow them to buy basics as well as discretionary items. Television sales are down in even the warehouse clubs, but up at Wal-Mart as the commoditization of flat screens continues. No retailers that I surveyed guided down.

Wal-Mart’s numbers were more than double expectations, coming in at 3.9% for the total company (1.4% expected). Of particular note: US Stores were up 4% (guidance was 0-2% and consensus was 1.4%). They mentioned specifically that they are seeing a bump from the stimulus checks. In a different press meeting this morning the number $350 million thus far was bandied about. Given that the average SuperCenter does $1 million per day (old fact, but probably still pretty correct), that might be a bit significant. Both traffic and ticket were up.

Target was within guidance but is lagging Wal-Mart and others who sell more food. TGT’s consumables exposure is about 20% of sales, and over 40% of sales (last year anyway) were in the weak apparel and home categories.

Nordstrom’s 10.9% comp was within the expected range of 8-12%. June expected to be VERY weak as the Half Yearly sale for Women & Children was moved from June to May. The two months combined should be fine.

Saks, a favorite on the upper end of the scale until now, fell out of bed. Seems like there might have been a few too many friends and family discounts given lately.

As for the rest of the mall? Nothing to write home about except Aeropostale (wow!), Zumiez and Hot Topic. Almost everyone else did worse than expected, in some cases (Gap) by unexplainably high percentage points. It's bad out there folks, but could you at least TRY, please?

not so Great Expectations

Tomorrow morning at a time that is so early it doesn't belong on any civilized person's clock the monthly onslaught of information known in retail land as comps (comparable store sales) will be released for our viewing pleasure.

These numbers can be both a huge help and a pain in the tush when analyzing retailers. The numbers themselves don't matter to the stock prices as much as how they differ from analyst expectations. Numbers may be not just negative but very negative, but as long as they're better than expectations, everything's hunky dory. And conversely, positive is good, but if they don't beat expectations, all bets are off.

One of tricks is sorting the wheat from the chaff in the releases. Is a company blaming weather for poor performance? (They almost never give the weather credit for good sales.) Is anyone else blaming the weather too? Where are their stores concentrated? How's the economy (or the weather) in that area of the country? Are they up against easy comparisons from last year, or will last year be hard to beat? In March and April, you also have to take into consideration when Easter was last year... a change from month to month can also affect sales significantly.

Oh, and don't forget to look for clues about earnings. Sometimes the company will come right out and adjust earnings expectations up or down. Sometimes they'll just hint that margins are weak or strong, which may affect the quarter's earnings, even if they don't say so outright.

Getting back to tomorrow's numbers: expectations aren't very high. It should be happy days for the usual suspects selling food (see my post two days ago) such as Costco and Wal-Mart. The department stores aren't expected to do much at all... negative numbers should abound, although Nordstrom moved a big sale from June into May, so their comps should be good. In specialty and apparel stores, don't expect much there either. It's tough days at the mall.