4 Must Knows to Smash into Your Head on Retail Sales
Today I sense rah-rah in the market regarding July same-store sales results. Gap smashed through expectations and lifted its second quarter earnings guidance, big-time. TJ Maxx and Ross Stores had another month that makes one wonder “what in the world are these guys selling that is leading to guidance raises on top of guidance raises…seemingly every month.” I can appreciate the modest euphoria as many retail stocks not having the benefit of a strong investment thesis have been mangled in 2012 (most acutely in the past few months). However, beware dear friends or you could be left holding an Abercrombie & Fitch or Aeropostale (peep this sick prediction on Abercrombie & Fitch from three weeks ago: http://decodingwallst.com/we-caused-a-newsbreaker-on-abercrombie-fitch/). Respect the messages going unshared in the various news feeds…
Retailers (and restaurants for that matter) are allocating more to marketing, the problem is it's geared towards specific promotions or the fact a 40% off sale exists (see Abercrombie's posts on its Facebook page as an example). Full price sales are far from the norm, clouding the earnings per share outlook for a large subset of retailers.
Consumers are very focused on wear now product instead of buying pieces for use at a later date. This “cash conservation mindset” causes new merchandise at full price to score a markdown quicker than management teams would like or budgeted.
There is inventory excess in the specialty apparel channel pre-back to school due to scattered sales misses. Great for off-price retailers to build their inventories at attractive costs, bad for companies managing businesses well in a mall setting as it weighs on pricing opportunities.
Spending in one area hits spending in another area; just not seeing businesses across the board gaining (and wouldn't expect it given an up-trending personal savings rate. For example, if women's footwear sells though strongly at Kohl's in a month (it did in July) the kiddies get the raw end of the stick (juniors category for Kohl's in the month was soft).