Shop Talk

Check Out Line: Retail analysts mixed on industry outlook

Check out Wall Street analysts having mixed views about different areas of retail.

Eric Beder of Brean Murray, Carret & Co raised his rating on long-suffering Abercrombie & Fitch to Hold from Sell, noting that the stock is currently trading 2 percent below his previous price target. With investors now assuming weak same-store sales and inventory overhang, and with international growth somewhat lower than expected, Beder said the risk/reward potential has improved enough for him to raise his rating.

“That said, we do not see the potential for a turn in (the second quarter),” Beder said in a research note.

Meanwhile UBS analyst Roxanne Meyer said her latest store check at Abercrombie revealed a big year-over-year uptick in the breadth of promotions. She said about 60 percent of the men’s merchandise and about 75 percent of women’s merchandise was on promotion, up from 30 to 35 percent a year earlier.

“We saw a meaningful amount of men’s cargo shorts and women’s dresses marked down,” Meyer said.

Despite the weather being better than it was last year, Meyer said sales trends have been choppy in June, with about half the retailers she covers seeing increased promotions. Aside from Abercrombie, she said American Eagle, Gap, J Crew and Ann Taylor LOFT stores had bigger promotions than last year.

Top U.S. retailers will give us all a better sense of how things are going when they report June sales next Thursday, July 8th.

Check Out Line: Have a helping of earnings

Check out the latest raft of earnings and outlooks kicking off the holiday-shortened week in the consumer world.

Kraft Foods, which makes Oreo cookies and Velveeta cheese, posted quarterly revenue that fell short of expectations, but said its recent acquisition of British chocolatier Cadbury would accelerate long-term growth.

Abercrombie & Fitch posted a lower profit as the retailer of casual yet trendy clothes for teens and college-age youth grappled with a prolonged U.S. sales slump.

Fossil, which sells watches, jewelry, leather goods, sunglasses and apparel, posted a better-than-expected profit and offered a full-year outlook above analysts’ expectations.

Darden Restaurants, owner of the Red Lobster and Olive Garden chains, raised its profit outlook for the year, citing improving consumer traffic.

“The signs of sales and traffic improvement we began to see late in the second quarter and discussed during our December conference call with investors continued into January and February,” Chief Executive Officer Clarence Otis said in a statement.

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Check Out Line: Bargain hunters trolling the web

Check out consumers stepping up their online bargain hunting ahead of the holiday shopping rush.

According to Hitwise, searches for retailer promo codes rose 19 percent last week compared with 2008.

Those numbers should rise headed into “Cyber Monday” – the Monday after Thanksgiving when retailers shift from in-store to online promotions.

Last year, Hitwise said searches on a portfolio of search terms for specific retailers (i.e. ‘target coupons’, ‘target coupon codes’ and ‘target free shipping code’) peaked during the week of Cyber Monday, up 76 percent from 2007.

So who is doing this searching? Hitwise looked at the demographics of online bargain hunters in the 8 weeks ending Dec. 27, 2008. It found the split is even for male and female searchers. Just over half of the searchers were between the ages of 25 to 44, and Hitwise said the younger searchers, aged 25 to 34, were more likely to search for retailer coupons than the rest of the online population.

It also found the greatest share of searches are from those making between $30,000-$60,000 and $60,000-$100,000.

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Check Out Line: The battle for lower prices

Check Out the competition in the mall.

As retailers tried to attract consumers for some post-Labor Day shopping, apparel retailers Aeropostale and Charlotte Russe beat Gap Inc’s Old Navy chain in the pricing war this month, according to Eric Beder,  associate director of research for Brean Murray Carret & Co.

While Aeropostale has “never looked better” with its combination of good merchandise and prices, Arden B owner Wet Seal remains the “low price leader,” Beder said.

Consumers have continued to seek lower prices for items like clothes and some surveys have predicted that although they might be willing to open up their wallets a little, they will still favor discounts as they draw up shopping lists ahead of the holiday season.

Another teen retailer Abercrombie, which usually has higher prices, may be realizing that consumers are likely staying cautious spenders and is offering more promotions, Beder said in  the research note.

And while Forever 21 and Urban Outfitters were using “strong fashions” to their advantage, Swedish apparel retailer H&M remains a top chain with low prices for fast fashion clothing and accessories, according to Beder.

Also in the basket:

Check Out Line: Losses in the retail world

Check out the quarterly losses reported by J.C. Penney and former teen darling, Abercrombie & Fitch.

Penney reported a net loss of $1 million, or nil per share, compared with a year-earlier profit of $117 million, or 52 cents per share. Analysts on average expected a loss of 1 cent per share, according to Reuters Estimates.

The loss was bigger over at Abercrombie.

The clothing retailer recorded a net loss of $26.7 million, or 30 cents a share, compared with a net profit of $77.8 million, or 87 cents a share, a year earlier.

Penney has fashioned itself as a value destination in the downturn, and said on Friday that it sold more merchandise at regular promotional prices and less at clearance prices. Shoes and women’s clothing were the strongest sellers, while children’s apparel sales were weakest.

Abercrombie, which has been reluctant have its name associated with value, faced sliding sales, higher markdowns and increased costs in the quarter.

As the economic downturn has deepened, teenagers are overlooking its high-priced fashions and turn to rivals with cheaper prices like Aeropostale or Forever 21. Abercrombie has slowly begun to discount or lower the starting ticket prices on some items to address the consumer aversion to high prices in the downturn.

Check Out Line: In stores for fall

Check out what’s happening in apparel retail, according to UBS analyst Roxanne Meyer.   There were lower promotional levels last week as fall items hit stores, Meyer said in a  research note.   Retailers are focusing on plaid woven tops, scarves, skinny and boyfriend denim, leggings, artsy graphic tees,  flutter sleeves, boyfriend blazers, ruffles and chunky necklaces. Oh, and skirts are making a comeback.   Meyer said she is starting to see some “more reasonable” price points at Abercrombie & Fitch, which has tried to avoid aggressive promotions that other retailers have used for months to clear excess inventory during the recession.   But she also said demand for $180 blazers, $80 super skinny jeans, $98 boyfriend jeans and $80 beaded silk tank tops at the store will be limited.   Also in the basket:   CIT Group on cusp of $3 billion rescue   Hasbro profit beats, Discovery deal to hurt less   Jarden sees profit, sales meeting or topping view   RVC buys Ellen Tracy collections (WWD, subscription required)   Barnes & Noble consolidates publishing (Wall Street Journal)

(Photo: Reuters)

Check Out Line: The hurt is spreading

Check out the latest sales reports, which show that consumers are still cutting back on discretionary spending as they shift to discounters for the basics.  Granted, that’s not exactly news anymore, but some of this morning’s sales tell us that even the discounters are starting to feel the heat.

“Sales for the month of May were somewhat below our expectations,” chief executive officer of Target, Greg Steinhafel, said in a statement.

He’s not alone.

Big boxers such as Target and BJ’s Wholesale reported steeper than expected drops in same-store sales, suggesting that the recession may have depended further than the luxury market.

Speaking of which, upscale department stores, such as Nordstrom and Neiman Marcus, saw sales slip while Macy’s fared slightly better than analysts had expected.  Abercrombie & Fitch, known for their strong hold on the younger markets saw same-store sales slide 28 percent, worse than the decline analysts had expected.  And teen/tween sensation Hot Topic, saw same-store sales fall 6.4 percent which were, again, steeper than analysts had predicted.

There were some bright spots, though: if you ignore gasoline sales, Costco Wholesale saw same-store sales rise one percent, and BJ’s Wholesale rose 4 percent.  And for apparel, Buckle Inc’s more casual teen market shopped the company’s same-store sales up 13.4 percent.

Even TJX, owner of TJ Maxx and Marshall’s among others, saw higher customer traffic translate into company gains even in the face of fluctuating international exchange rates.

Check Out Line: Apparel apathy endures

By Nicole Maestri Check out the ongoing struggle to sell clothes to recession weary Americans.   J.C. Penney and Abercrombie & Fitch both reported quarterly results that show consumers are still cutting back on non-essential items, with Penney also warning profit for the year would be worse than analysts expected.   Consumers have been hammered by the recession, mounting job losses and credit worries, and it appears they are sticking to shopping lists for groceries and other essentials, rejecting unnecessary purchases and seeking deep discounts.   While the conviction to buy only what they need has hit sales for department stores like Penney, consumers’ desire for bargains has battered Abercrombie, which has stubbornly kept prices higher than rivals, other than discounting clearance items.   “With a challenging economic environment, the consumer continues to show a reluctance to spend on premium brands; a price consciousness dictating shopping habits unlike anything I have ever seen,” said Abercrombie Chief Executive Mike Jeffries, a retail industry veteran. The teen clothing retailer posted a first-quarter loss wider than Wall Street’s expectations, and in an abrupt change, said it is conducting a strategic review of its struggling Ruehl chain. Meanwhile, Penney posted an in-line quarterly profit, but forecast second-quarter and full year results below analysts’ expectations. “We expect consumer spending and mall traffic to remain weak, which will be particularly evident against tough comparisons in the second quarter,” CEO Mike Ullman said. Also in the basket: Kohl’s, Nordstrom beat forecasts, raise 2009 views H&M April sales rebound boosts recovery hopes Target pilot pays employees to monitor health (Photo: Reuters)

Finding the humor in it all

There are very few things to laugh about in the retail world at the moment, but JP Morgan analyst Brian Tunick did a great job of adding some humor to what was a difficult week, especially for Gymboree.

Gymboree gave a bleak forecast for its first quarter, saying regulatory changes related the Consumer Product Safety Improvement Act passed by the Congress in August 2008 will impact sales and gross margins in the first half of 2009. The act required the Consumer Product Safety Commission to begin enforcement of new lead and phthalate standards for children’s products on Feb. 10, 2009.

To try to make light of the situation, Tunick put together this humorous list of the Top 10 new issues that the Consumer Products Safety Commission has its eyes on, and he gave us permission to publish it:

10. Retroactive to August 2006, Forever 21 and Wet Seal shoppers must comply with new rules governing proper disposal of disposable fashion.   9. $98 ballet flats may only be worn while actually performing ballet. Or if someone’s inventories are up mid-teens.   8. Unless you can prove that you are attending a bachelor party in Vegas, the Buckle must limit its customers to one item of Ed Hardy, Affliction or Obey per hour per day.   7. Unless you can prove that you are attending a bachelorette party in Vegas, Bebe Sport must limit its customers to one rabbit fur performance vest and matching Bebe Baby (and we’re not kidding) metallic diaper bag.   6. A new 24 hour hotline has been set up for consumers to call if they’ve accidentally combined the highly volatile Coconut Lime Verbena shower gel with Honey Suckle Dawn anti-bacterial hand foam.   5. Big box value retailers located within a 100 mile radius of an Old Navy store must relocate immediately to help customers rediscover the family, fun and value that you can find ONLY at Old Navy.   4. Abercrombie greeters and employees working in the front room must have no more than 8% body fat on the day they are hired and no more than 2% by the time Mike Jeffries makes a surprise visit to the store.   3. Beginning March 10th, JOSB (Jos. A. Bank) must actually sell something in the store at full price.   2. All retailers employing Debbie Phelps (The mother of Michael Phelps, who wore Chico’s clothes during her son’s historic performances at the Beijing Olympics) must increase the minimum content of novelty in novelty jackets, so that people might actually buy them.   And finally #1…….While we understand it may be tempting, TJX and Ross Stores must restrain from selling lead tainted GYMB inventory to bargain hungry off-price shoppers.

(Photos: Reuters)

Check Out Line: No discounts? no customers

Check out Abercrombie & Fitch’s falling profits.

The company played a remix of “Cold as Ice” as hold music for its conference call with analysts. It’s hard to tell if it is supposed to be ironic, or if the company is just tone deaf.    The latter could be possible, as Abercrombie has decided to tune out consumer’s expectations that retailers will offer discounts to try to get them in the door.   In November, CEO Mike Jeffries said the short-term relief provided by promotions would have the affect of damaging the brand in the long term.  He defended the strategy again on Friday, though the company has cut some prices at its Hollister and abercrombie chains.   But if people stop going to your store, do they eventually forget about your brand?   Abercrombie’s same-store sales fell 25 percent in the key fourth quarter. Of course, refusing to discount (other than on clearance items) protects profits. Or maybe not. Net income fell 68 percent, though some of the decline was related to a new employment agreement for the CEO.   Also in the basket:   PepsiCo Q4 profit falls, but matches Wall St view   Sears launching online service to connect clients, contractors (Chicago Tribune)   Starbucks to sell instant coffee   Microsoft to open own stores, take on Apple