September Comps Fly High

September was a star, but October might be tougher. Cooler weather, falling gas prices and a desire to update the closet drove shoppers to stores last month, lifting same-store sales beyond expectations. Big gainers included high-end department stores Nordstrom, Saks Fifth Avenue and Neiman Marcus with comp increases of 13.4, 11.1 and 7.9 percent, respectively. In the specialty channel, American Eagle Outfitters, Abercrombie & Fitch and Aéropostale surpassed expectations with gains of 19, 10 and 8.5 percent, respectively. Other standouts included Victoria’s Secret with a 19 percent increase, and Bebe Stores with a 15.3 percent gain. And, as reported, Kohl’s delivered a 16.3 percent increase in September comps. Results were robust despite a late start to the back-to-school season. Aside from falling gas prices and cooler weather, analysts said shoppers were in need of updating their apparel. Retailers also faced easier year-over-year comparisons. Last year, the market was dragged down by the impact of Hurricane Katrina. But analysts predict apparel retailers might not be able to keep up the momentum in October because of the weakening economy, even though they continue to expect a strong holiday season. “We are looking for a little bit of a letup moving into the holidays. It will be difficult for the apparel industry to keep up at the same pace as they are going as the economy slows, but the apparel and department stores should not face a big drop-off,” said Frank Badillo, senior economist at Retail Forward. For this month, the International Council of Shopping Centers predicts that same-store sales for chains will rise about 3 to 3.5 percent. Of the 50 companies tracked by WWD, 42 reported a gain in same-store sales for September while one was flat and five posted a decrease. The department store sector stood out from the pack with a 7.4 increase in average same-store sales versus a 1 percent increase in the prior year. Specialty stores jumped 6.5 percent against 5 percent last year, and the mass channel was up 5.6 percent over 4.1 percent the previous year. “Fashion trends in both color and shape created incentives for customers to shop in order to update their wardrobes,” said Christine Chen, retail analyst at Pacific Growth Equities, in a research report. “Sales were driven by demand for longer tops, sweaters, dresses, leggings, straight and skinny bottoms, which were all key categories this fall.” Badillo said luxury department stores are “benefiting from the fact that the job market is still quite strong, especially among professional and management positions. People are still feeling wealthy enough to go out and spend on luxury.” Nordstrom’s comps trampled forecasts, coming in well over Wall Street’s 6.3 percent expectation. “Nordstrom continues to hit the ball out of the park and we anticipate the company’s momentum to continue,” said independent retail analyst Jennifer Black, of the firm bearing her name, in a research note. “Not only is the company posting impressive comp gains, but doing so with strong full-priced selling.” Federated Department Stores posted a 6.2 percent comps gain, while Saks Inc.’s total comps swelled 10 percent. “Department stores and apparel manufacturers that sell into the department store channel are experiencing year-over-year improvements as those companies reap the benefits of last year’s repositioning efforts,” Black said. In the specialty retail segment, American Eagle attributed its success to the launch of aerie, its new intimate apparel line, as well as fall merchandise selling predominantly at full price. The company raised its third-quarter guidance by 5 cents to 60 cents to 63 cents a share. Margaret Mager, an analyst with Goldman Sachs who follows specialty apparel retailers, said results were “better than expected, despite high expectations heading into the [comps] report.” The firm’s Specialty Apparel Index rose 6 percent, “above our estimate for a 2.5 increase.” Chen said in a research note that “a later start to b-t-s, the arrival of fall weather and lower gas prices resulted in strong September sales for most retailers, particularly those catering to teen customers.” The strong performance of Limited Brands’ Victoria’s Secret chain was driven by robust sales of Pink merchandise and the launch of the new Very Sexy cosmetics line. While the specialty sector fared well for the most part, it did see some disappointing numbers from Gap, Hot Topic, Pacific Sunwear and Wilsons. But even though Gap saw a comps decrease of 5 percent, results improved from August at all divisions, and there was a solid increase in store traffic. “They have a much deeper hole than they can fix in a month’s time,” said Patricia Walker, partner at Accenture Retail Practice. “This month, even though they are still negative, it is still a better trend for them.” The mass merchants were the weakest performers of the groups, with Wal-Mart up only 1.3 percent, compared with 2.3 percent in the year prior. Wal-Mart revised its comps downward for the period because it originally forecast 1.8 percent. Rival Target, on the other hand, increased comps by 6.7 percent versus last year’s gain of 5.6 percent. At TJX Cos., all divisions posted results above expectation, which analysts said was due to aggressive e-mail efforts, the marketing of better brands and favorable weather conditions.

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