Sales Release Thursday – July 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.

July 2012 Improves Versus an Easier Compare. August 2012 Laps Hurricane Irene.

• See attached for the full report and various comp ‘stack’ presentations.

• Big picture, comp sales in July 2012 were above expectations.
  
  Yet, the following companies reported top-line results that were below the consensus estimate: SKS, WTSLA, and ZUMZ.

  It’s worth a reminder that last year’s 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.

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

• In July 2012, retailers generally reported comp sales results that were between +200 Bps to +300 Bps versus June 2012 (see attached table).
• July 2012′s 4-year comp sales ‘stacks’ range from +23.0% at LTD to -24.6% at WTSLA (yikes!).

  Retailers, with negative 4-year comp sales ‘stacks’ in July 2012 include GPS (-1.0%), FRED (-1.2%), CATO (-6.0%), SSI (-6.4%), SMRT (-8.1%), BONT (-11.7%), and WTSLA (-24.6%). See attached table.

• Gas prices in July 2012 were -4.2% below LY (per monthly disclosures at COST). In July 2011, gas prices were up +28% 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.

• ARO CEO Tom Johnson should have been fired long ago!

  We’ve yet to take a close look at our EPS model. But, the guidance appears to imply very little, if any, EBIT margin improvement in Q2 2012 versus LY’s debacle. Unacceptable.

• COST suggested that the July 4th holiday shift boosted its comp sales by approximately +100 Bps in July 2012.
• GPS has an extremely low bar relative to its peers. But, can you remember the last time GPS led the way? Comp sales of +10.0% in July 2012 were only eclipsed by LTD

  Actually, take away the dismal results in the International Division, GPS may have led the way!

• HOTT suggests that its strategic decision to open Torrid stores in strip centers has proven to be successful. In addition, the chain has improved the growing chain’s merchandise margin via a move to a vertical sourcing model.
• KSS announced that its unit levels at the end of July 2012 are now +5.0% per store (vs. +2.0% at the end of June 2012). Yet, comp sales results in July 2012 against an ‘easy’ comparison (-4.6% last year) left musch to be desired.

  We’re forecasting material EPS downside in Q3 2012 versus today’s consensus estimate.

• LTD reported a “significant” merchandise margin decline (ex-divestiture) in July 2012 versus LY. The company has now reported a “flat” or “lower” merchandise margin versus the prior year for 12 consecutive months (ex-divestiture).
• JWN management really needs to ‘fully’ define the “accounting adjustments” it makes when reporting divisional comp sales results. The disparity between total company and divisional results remains a head scratcher and is doing the company more harm than good with the investment community.
• While we continue to forecast EPS upside at TGT, when excluding groceries, comp store sales results continue to be relatively weak.

  Comp store sales in teh grocery category were “positive double digits” in July 2010, “positive mid-teen to high-teen” in July 2011 and now “positive low double digits” in July 2012.

  Interestingly, apparel category comp sales at TGT decelerated in July 2012 versus June 2912 (“positive slightly” in July 2012 versus “positive LSD” in June 2012). Almost all apparel retailers reported stronger comp sales in July 2012 versus June 2012.

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

  Overall, comp sales in August 2011 were -100 Bps to -200 Bps below July 2011.

  In August 2011, comp sales were negatively impacted by Hurricane Irene. The following retailers explicitly suggested that comp sales in August 2011 were hurt by the storm (BJ, BONT, CATO, COST, JCP, M, RAD, SKS, TGT, and TJX)

  In August 2011, week #3 was considered the strongest fiscal week from a comp sales perspective. Conversely, week #1 was considered the weakest fiscal week.

  In August 2011, strong categories in August 2011 included food (inflation), jewelry, intimate apparel, and junior apparel. Weak categories in August 2011 included home and athletic shoes.

  In August 2011, the Southeast and Midwest were generally held to be the strongest comp sales regions. The Northeast and Mid-Atlantic were generally held to be the weakest comp sales regions in August 2011.

  In August 2011, COST disclosed that its average gasoline selling price decreased to $3.52 in July 2011 versus $3.56 in July 2011. That said, the average price in August 2011 was +25% higher than LY ($2.81).