Sales Release Thursday – June 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.

Despite Lapping Strong Month, June 2012 Still Weak. July 2012 an Easier Compare.

• Abbreviated notes this month due to vacation. See attached for the full report and various comp ‘stack’ presentations. Our monthly Sales Notes may not be published this month.

• Big picture, comp sales in June 2012 were below expectations.
  
  The following companies reported top-line results that were below the consensus estimate: BKE, BONT, CATO, COST, FRED, KSS, M, SMRT, and TGT
• In June 2012, retailers generally reported comp sales results that were between -200 Bps to -300 Bps versus May 2012 (see attached table).

  A few retailers attempted to blame the July 4th holiday shift for weaker than expected top-line results (BONT, CATO, and COST).

• June 2012′s 4-year comp sales ‘stacks’ range from +20.1% at JWN to -16.4% at WTSLA (yikes!).

  Retailers, with negative 4-year comp sales ‘stacks’ in June 2012 include BONT, CATO, FRED, GPS, SMRT, SSI and WTSLA. See attached table.

• Gas prices in June 2012 were below LY (per monthly disclosures at COST). In June 2011, gas prices were up +34% versus the prior year.

  In other words, the year-over-year impact has improved this year versus the year-over-year impact that consumers were experiencing at this time last year.

• BKE again reports a top-line disappointment.

  The company’s results in June 2012 imply a -6.5% comp transaction count decline versus LY. This compares to an implied -3.8% comp transaction count decline in May 2012 and a -4.0% implied comp transaction count decline in April 2012. Not good.

  Transactions in April 2012 were likely hurt via an Easter calendar shift. Transactions in May 2012 were likely boosted via the Mother’s Day shift.

  Also, let’s keep in mind that the company materially increased their inventory levels beginning in Q2 2011. The company will have to lap this particular strategic initiative that likely ‘juiced’ comp sales a year ago.

• COST’s consumer electronics category AGAIN reported a +MSD comp sales result in June 2012 (same as May 2012). Previously, the last monthly year-over-year increase was in November 2011.

  It’s worth noting that in both May 2012 and June 2012, COST’s sales recording referred to the “Consumer Electronics” category as opposed to the historical “Majors” category. Has the semantics shift impacted the calculation of the metric?

  Regardless, as we suggested last month, it may be time to take a closer look at BBY.

• GPS reports a miserable -14% comp sales result in June 2012 in its International Division. This compares to +1% in May 2012. Our bet is that China has now become a material drag on the division’s comp sales.

  That said, the International Division will lap a much easier comparison in July 2012 (-10%).

• Very impressive comp sales results at JWN in June 2012. Yet, keep an eye on July 2012.

  Yes, the company has announced a one week shift of the Anniversary Sale that will hurt July 2012 and benefit August 2012. But, JWN may be the only monthly sales reporter that faces a tougher 4-year comp sales ‘stack’ in July 2012 than June 2012 (fiscal July has been a relative disappointment for the retail industry over the past 6-7 years).

  Therefore, JWN faces more than simply an event shift in July 2012.

• Looking Ahead by Looking Back… What happened in July 2011?

Overall, comp sales in July 2011 were -200 Bps to -300 Bps below June 2011.

In July 2011, comp sales were negatively impacted by extreme heat (encouraged shopping for wear-now product but hindered Fall product sales). July 2011 was the warmest July nationally since Planalytics, a weather tracking firm, began following temperatures in the U.S. in 1960.

In July 2011, a few retailers blamed the “debt ceiling” debate in Washington, DC for lackluster sales late in the month.

In July 2011, week #3 was considered the strongest fiscal week from a comp sales perspective. Conversely, week #2 was considered the weakest fiscal week.

Strong categories in July 2011 included food (inflation), jewelry, small electronics, and women’s apparel. Weak categories in July 2011 included home, children’s apparel, and athletic shoes.

In July 2011, the Southeast and Texas were generally held to be the strongest comp sales regions. The West was generally held to be the weakest comp sales region in July 2011.

In July 2011, COST disclosed that its average gasoline selling price decreased to $3.56 in July 2011 versus $3.64 in June 2011 (-2%). That said, the average price in July 2011 was +28% higher than LY ($2.79).

In July 2011, food inflation continued to inch higher. COST disclosed that its Food/Sundry inflation was +LSD to +MSD in July 2011 versus LY. In July 2011, COST’s Fresh Food inflation was +MSD versus LY.