Study Sees Softer Back to School Sales
New York City, High consumer confidence and low inflation will be offset by factors such as deflationary pricing and a potentially negative savings rate, resulting in a 1% decline in back-to-school/back-to-college sales in 2005 compared with 2004, according to a forecast released today by Standard & Poor’s, the largest provider of independent equity research in the United States.
The study, Retail Outlook: Back-to-School/Back-to-College 2005, cited several factors for Standard & Poor’s neutral outlook for the sector. In addition to the aforementioned high levels of consumer confidence and low inflation, other positive factors contributing to retail spending include strong employment trends, a heightened interest in fashion by both sexes, smart merchandising and pricing by discounters, new footwear functionality, continued momentum in hot consumer electronics products, a strong denim cycle and projected increases in primary and secondary school and college enrollment (albeit the high spending college freshmen and juniors are projected to increase at a slower pace than in 2004). Unfavorable indicators include deflationary pricing, a negative savings rate for August forecast by S&P and rising oil prices that may lead to less discretionary income for shoppers.
Standard & Poor’s Equity Research Services is neutral on back-to-school/back-to-college retail sales for 2005, and projects total sales of about $40 billion. Of this, S&P anticipates consumer electronics will garner the largest share of the retail market at 26%, or $10.3 billion, followed closely by apparel sales at 24% ($9.6 billion). Both figures represent declines from last year—3% in electronics and 4% in apparel—although back-to-college electronics sales specifically are projected to rise 9%.
“Historically, spending for back-to-school is a closely watched indicator of consumers’ willingness and ability to spend, and has been a good indicator of what consumers will look to spend during the holiday season,” said Marie Driscoll, head of the retail group at Standard & Poor’s Equity Research Services.” “Overall, despite our neutral stance, we see some winners in the electronics, apparel and footwear categories as retailers kick off fall 2005.”
Within categories, Standard & Poor’s forecasts Best Buy and Circuit City as the best-positioned consumer electronics retailers, based largely on increased revenue from services. Teen apparel mainstays Abercrombie & Fitch, American Eagle and Aeropostale are cited as well-positioned for success this fall, along with Nike and department stores J.C. Penney and Kohl’s. In footwear, S&P expects sporting goods retailers that have become adept at appealing to young shoppers, in particular Finish Line, to succeed. Finally, giant retail outlets Target and Wal-Mart are projected to do well as the one-stop shopping destinations of the masses.
Wal-Mart Disappointed With 5.8% Growth
Bentonville, Ark., Wal-Mart Stores, Inc. reported record second-quarter sales and earnings for the quarter ended July 31, 2005. Net sales were $76.8 billion, an increase of 10.2% over the second quarter of fiscal 2004. Net income for the quarter was $2.8 billion, an increase of 5.8% from $2.7 billion in the prior-year quarter.
Still, the quarter revealed the most modest growth in four years, disappointing company executives. Lee Scott, president and CEO, said, “Early in the quarter, our results were disappointing; however, July came in stronger than expected. Wal-Mart Stores did miss their plan as our customer continues to be impacted by higher gas prices and it is difficult to improve our expense leverage in the current environment.”
Total U.S. comparable sales for the quarter increased 3.5%, which is represented by a 3.6% comp increase for Wal-Mart Stores and a 2.9% comp increase for Sam’s Club. Total U.S. comparable sales for the six-month period were up 3.2%, which is comprised of a 3.2% comp increase for Wal-Mart Stores and a 3.2% comp increase for Sam’s Club.
Net sales for the six months ended July 31 were $147.7 billion, an increase of 9.8% over the first six months of fiscal 2005. Net income for the six months increased 9.3% to a record $5.3 billion, up from $4.8 billion in the same prior-year period. Net income for the six months was favorably impacted by two items totaling $145 million after tax or $0.03 per share: an increase due to favorable tax resolutions of $77 million and positive legal developments of $68 million after-tax.
Tuesday Afternoon Earnings Roundup
Seattle, Nordstrom Inc. recorded net earnings of $148.9 million in the second quarter, up from $106.9 million a year ago. Total sales rose 7.8% to $2.1 billion on a comps increase of 6.2%.
• Staples Inc. recorded a 20% gain in second-quarter net income to $147 million. Revenues increased 12% to $3.47 billion for the quarter, supported by 3% comps growth.
• Abercrombie & Fitch posted a 34% increase in net income to $57.4 million in the second quarter. Company net sales rose 42% to $571.6 million on same-store sales growth of 30%.
• Borders Group Inc. reported consolidated net income of $1.3 million in the second quarter, down from $7.9 million in the year-ago period. The retailer attributed the shortfall to the cost of strategic investments. However, consolidated sales increased 5.3% in the quarter to $891.6 million on same-store sales growth of 1.8% and 1.9% at Borders superstores and the Waldenbooks division, respectively.
• Dick’s Sporting Goods Inc. announced second-quarter net income of $22.1 million, up from $17.9 million in the year-ago period. Dick’s recent performance was impacted by after-tax merger integration and store closing costs of $3.2 million and an after-tax gain on sale of investment of $1.1 million. Sales increased 50% to $622 million. Same-store sales rose 0.5%.
• Wilsons The Leather Experts announced a net loss of $14 million in the second quarter, as compared to a net loss of $30.4 million in the same quarter of 2004. Net sales increased 5.6% to $58.4 million, supported by comps growth of 8.7%.
• Cato Corp. posted net income of $10.7 million in the second quarter vs. $8.1 million in the same quarter of 2004. Sales increased 6% to $208.3 million. Same-store sales remained flat.
• Books-A-Million Inc. posted second-quarter net income of $1.7 million, up from $989,000 year-over-year. Net sales rose 7.9% to $122.4 million on same-store sales growth of 4.4%.