Tepid sales growth in June among mass market retailers disappointed analysts as consumers appeared to pull back on more discretionary purchases. More affluent shoppers, however, appeared to be in a more free-spending mood that benefited department stores.


Greg Jacobson, June sales growth, Target Corp., Gregg Steinhafel, chairman, president, chief executive officer, Costco Wholesale Corp., net sales, Mark Miller, William Blair & Co., BJís Wholesale Club Inc., Fredís Inc., Walgreen Co., Duane Reade, Rite Aid Corp., J.C. Penney Co., Kohlís Corp., Macyís, Frank Badillo, Kantar Retail












































































































































































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Retail News Breaks Archives

June sales fall short of Wall Streetís hopes

July 8th, 2010

NEW YORK – Tepid sales growth in June among mass market retailers disappointed analysts as consumers appeared to pull back on more discretionary purchases. More affluent shoppers, however, appeared to be in a more free-spending mood that benefited department stores.

Target Corp., for example, posted a 4% rise in net sales to $5.92 billion, but comparable-store sales gained just 1.7%, a full percentage point below the 2.7% average increase expected by analysts surveyed by Thomson Reuters. "Sales remained relatively soft for the second month this quarter, though we continued to experience favorable merchandise sales mix, effective retail expense control and strong profitability in our credit card segment," said Gregg Steinhafel, chairman, president and chief executive officer. "Sales trends in apparel, food, health care and beauty remained strong in June, while sales in electronics, video games, music and movies were particularly soft for the month."

The largest membership warehouse club operator, Costco Wholesale Corp., reported a 7% increase in net sales to $7.33 billion as comparable-store sales improved 4%, falling just short of the 4.2% consensus among analysts. The company’s international warehouses, which benefited from positive foreign exchange trends, collectively booked a 14% increase and were responsible for much of the comp-store rise, since domestic warehouses rose 2%. Gasoline sales also lifted results: Excluding the favorable impact of fuel and foreign exchange rates, domestic comp-store sales rose just 1% while international units advanced 8%, resulting in an overall comp-store increase of 3%. The company closed its outlets on Memorial Day, which lowered comp-store results by about two percentage points, according to executives.

"Excluding the benefits of foreign exchange and gas price inflation, as well as the detriment from the Memorial Day shift, underlying comps increased 4% to 5%, which represents a material acceleration from the 1% to 2% growth rate in April and May," wrote Mark Miller, analyst with William Blair & Co. in a research note. "Underlying comp growth was driven entirely by strong customer traffic. We maintain our above-consensus EPS estimate for the August quarter and recommend investors add to positions, as we believe Costco’s business will benefit from strong small-business spending and the potential for improved average ticket."

Costco’s smaller rival, BJ’s Wholesale Club Inc., saw net sales rise 7.9% to $1.08 billion, while comparable-club sales improved 3.8%. Excluding gasoline sales, merchandise comp-club results gained 3.2%. Analysts had expected total comps to rise 5.3%.

According to management, if gas sales are excluded, traffic increased about 5% but the average transaction declined approximately 2%. Food sales expanded about 4% while general merchandise expanded just 1%. Departments showing the strongest increases included air conditioners (reflecting an unusually hot June in BJ’s Eastern markets), cigarettes, dairy, juices, meat, milk, prepared foods, produce, seasonal, toys and water. Weaker departments included prerecorded video, TVs, computers and paper products.

Regional discounter Fred’s Inc. recorded a 2% increase in total revenue to $178.3 million that included a 1.2% rise in same-store sales. Wall Street, however, had looked for a 3.1% rise.

Among the leading drug chains, Walgreen Co. beat analysts’ projected 1.1% gain with a 2% uptick in same-store sales. Total sales surged 8..4% to $5.67 billion, reflecting a 3% points lift from its acquired Duane Reade stores (same-store sales do not include Duane Reade). Customer traffic in same-stores rose 2% while the average transaction edged up 0.2%.

At Rite Aid Corp., however, the top-line performance continued to weaken in June. Total sales fell 3.3% to $1.91 billion, reflecting a year-over-year decrease in store count of 63 to 4,759. However, same-store sales declined 2.5%, including a 3.1% drop in the pharmacy and a 1.1% dip at the front end. Prescriptions filled at comparable stores decreased 3.7% during the month.

While most mass market retailers had little to cheer about, department stores enjoyed a strong rebound in June. For example, J.C. Penney Co. posted a 4.5% increase in comparable-store sales, while Kohl’s Corp. saw comp-store results gain 5.9%. Macy’s Inc., meanwhile, enjoyed a 6.5% sales lift at its comparable stores. Both Macy’s and Penney exceeded analysts’ estimates.

"The June results are positive, but the recovery in retail sales will be challenged in the coming months as long as doubts grow among shoppers," says Frank Badillo, senior economist for Kantar Retail. "It’s clear that the news from the Gulf to Europe is starting to affect the outlook among shoppers."

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