Sales Release Thursday – April 2012

Each month, we provide our clients an early analysis of sales disclosures on sales release Thursday. Below, are a few bigger picture thoughts that we published earlier this morning prior to the opening bell.

Weather Tailwind Now in Rearview Mirror & Food Inflation No Longer a Material Driver

Click here for the full report and various ‘stack’ presentations.

• Big picture, comp sales in April 2012 were below expectations. We find this modestly surprising given the wetter than normal weather pattern a year ago in April 2011.The following companies reported top-line results that were below the consensus estimate: BONT, BKE, COST, FRED, GPS, KSS, M, SKS and TRG.
• Looking ahead, we’ve (finally) arrived at the point where retailers are likely to no longer receive a material weather boost versus the prior year.
• In April 2012, retailers generally reported comp sales results that were between -400 Bps to -600 Bps versus March 2012 (see attached table).

Therefore, keep an eye on retailers that reported comp sales in April 2012 that were more than -600 Bps less than March 2012 (e.g. GPS, KSS).

• April 2012′s 4-year comp sales ‘stacks’ range from +28.0% at BKE to -21.0% at SKS(yikes!).Retailers with negative 4-year comp sales ‘stacks’ in April 2012 include BONT, KSS, SMRT, SKS, and WTSLA. GPS has a flat 4-year ‘stack’ in April 2012. (see attached table)
• In March 2012, children’s apparel sales were strong across the board (e.g. +mid-teens at KSS) as the category clearly benefited from the earlier Easter this year. But, in April 2012, no retailers mentioned strength in the children’s apparel category as the ‘artificial’ boost in March 2012 (calendar shift) reversed in April 2012.
• Many analysts point to an acceleration of gas prices as a drag on the top-line. But, what many fail to realize is that gas prices in April 2012 were up only +2% versus LY (per monthly disclosures at COST). In April 2011, gas prices were up 37% versus the prior year.
• In other words, the year-over-year impact is negligible this year versus what consumers were experiencing at this time last year.
• As we suggested two months ago, BKEhad the most difficult comparisons in March/April 2012 as the chain’s comp store sales materially increased in the March/April reporting period a year ago (relative to February 2011).Therefore, the top-line results in March/April 2012 may confirm that the company’s sales results have finally begun to decelerate.
• COST continues to report a deceleration in the Food/Sundry and Fresh Foods categories. Let’s remember that food inflation began to accelerate/spike in April 2011. The grocery sector faces a top-line inflection point as the food inflation tailwind dissipates.
• LTD was the only company that explicitly discussed merchandise margin trends in April 2012. The company disclosed that its merchandise margins at Victoria’s Secret were lower than last year. Merchandise margins at Victoria’s Secret DTC and Bath & Body Works were flat relative to LY.
• Looking Ahead by Looking Back… What Happened in May 2011?

Overall, comp sales in May 2011 were relatively weak as retailers had a tough time lapping a material weather boost in the latter half of May 2010. Comp sales results in May 2011 were generally below that of the March/April 2011 period.

The following retailers specifically mentioned that sales in May 2011 were below expectations: CATO, DEST, SSI, and TGT.

In May 2011, the strongest category performance was in food (inflation), jewelry, computers, and accessories. There was no universally weak product category (per retailer reporting monthly results).

In May 2011, week #2 was generally considered to be the strongest fiscal week from a comp sales perspective. Week #3 was generally held to be the weakest comp sales fiscal week in May 2011.

In May 2011, the Southeast and West were generally held to be the strongest comp sales regions. The Northeast and Midwest were generally held to be the weakest comp sales regions in May 2011.

In May 2011, the average price per gallon of gas was $3.86 (per COST). What’s interesting is that the year-over-year increase in May 2011 was +39%. Prices thus far in May 2012 are only flattish on a year-over-year basis (as of today).

In May 2011, food inflation began to spike. For example, in both April 2011 and May 2011, COST reported that its food/sundry inflation was +3% versus LY (compares to an only “slightly inflationary” disclosure in March 2011).