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US retail: May same-store sales
US retailers reported mostly better-than-expected May same-store sales, driven by promotions. Telsey Advisory Group's Dana Telsey provides her analysis of the results, as well as the outlook for June.
May's overall same-store sales came in better than expected at 4.3% vs 3.1% last year, mainly driven by promotions. The May 2005 comparison of 3.1% was more challenging than the 2.2% of April 2005. May was a four-week retail month and typically comprises about 32% of second-quarter sales.
In general, May accounts for a greater percentage of second-quarter sales for the adult and off-price retailers than for the teen retailers. Despite the solid results in May, June is still the key month in the second quarter, encompassing five weeks and about 38% of Q2 sales.
May results were driven by the arrival of summer merchandise, Mother's Day and Memorial Day weekend, which is the kickoff of spring and early summer clearance in preparation for the arrival of back-to-school merchandise.
We also saw a build in customer traffic heading into Mother's Day, particularly at Ann Taylor, Bath & Body Works (a unit of Limited Brands Inc) and Banana Republic (a unit of Gap Inc). From a sales perspective, American Eagle Outfitters, Ann Taylor, Limited Brands Inc and Ross Stores came in better-than-expected, while Gap Inc, Hot Topic and Pacific Sunwear came in below plan.
Popular merchandise trends include leggings, Bermuda shorts, skinny bottoms and more voluminous tops.
Speciality apparel
The companies that exceeded May same-store sales expectations include:
American Eagle Outfitters – comped up 11%, versus a consensus estimate of 9.1%. Knit tops and shorts are a key driver and the tiered pricing strategy is quite effective.
Ann Taylor – comped up 12%, versus a consensus estimate of 6.1%. Both core Ann Taylor and Ann Taylor LOFT performed better than expected in May, with consistent strength across merchandise categories. We continue to expect positive results from both divisions, given the enhancement to the casual and career assortments.
Limited Brands Inc – comped up 7%, versus a consensus of 5.3%. Both Bath & Body Works and Victoria's Secret exceeded expectations, while Express came in below plan. Sales events occur in June at Limited Brands Inc, which could be a comp driver.
The companies that did not meet May same-store sales expectations include:
Gap Inc – comped (6%), versus a consensus estimate of (4%). Gap Inc continues to face challenging customer traffic patterns, especially at Old Navy, where some of the revamped merchandise is not generating higher traffic. The big news is yet to come at Gap brand, as the company prepares to introduce its revamped back-to-school (BTS) floor set in late July.
Hot Topic – comped (6%), versus a consensus estimate of (5.5%). Although comps were still negative, the sequential same-store sales trend improved in men's, women's, and accessories. We are awaiting the arrival of additional bottoms to drive the early back-to-school business in the second half of June. We were pleased to see continued improvement at Torrid, with solid performance in tops, dresses, jackets, and accessories.
Pacific Sunwear – comped (2.6%), versus a consensus estimate of 3.8%. At PacSun, the chain continues to experience weakness in its girls' sneakers, graphic tees, and denim. In the d.e.m.o. division, guys' shorts and woven classifications experienced weak sales. We will be looking for the introduction of the re-styled girls' denim line as well as new sneaker offerings in mid-June.
June 2006 preview
June is important as it is the most significant sales month of the second quarter and also marks the beginning of BTS floor sets. Comparisons become more difficult in the entire softlines sector, with the June 2005 comp of 5.3%. Note that teen retailers face the toughest comparison of 18.1% in June 2005.
Hardlines retailers
Despite our cautiously optimistic macro view, most of the hardlines retailers that reported Q1 sales and earnings results in the past few weeks described a slowdown in sales that began in April and continued into May.
Home Depot, Lowe's, Staples and Williams-Sonoma all commented on a slowdown in sales over the past six to eight weeks. With the exception of Staples and PetSmart, customer traffic seems to be the main culprit.
Dana Telsey is the Chief Executive Officer and Chief Research Officer of Telsey Advisory Group LLC (TAG).
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