As noted in my preliminary report (The Impact of Weather on March 2009 Retail Sales) released earlier this week, March sales were mostly negative, however glimmers of hope and "shoots of spring" are becoming evident. As noted in various press reports, "retailers seem to be celebrating because results weren't as poor as they initially feared."
Richard Hastings insightful and detailed analysis of March sales is pasted below and attached here (detailed report). An interesting and seemingly profitable new retail industry seems to be slowly emerging from the depths of the recession.
The Beginning Begins: Embracing a Smaller, More Profitable Industry
Summary: Retailers published their sales results for the month of March 2009, generally for the 5-week period ended April 5, 2009. On average, the trend remained disappointing but we saw very encouraging results from a core group of retailers, some of them beating analysts' expectations by a wide margin, and some of these lifting earnings guidance for the first fiscal quarter. The outlook remains encouraging.
KEY OBSERVATIONS:
Do not confuse “the consumer” with the healthier earnings direction of the industry. We would not, going forward, equate “the consumer” and “consumer spending” with the earnings potential of the smaller group of leading retailers. The industry is getting stronger despite deep and persistent weakness in the household sector. The number of retailers continues to consolidate, and shoppers continue to consolidate their loyalties among a select group of merchandise retailers. We provide some evidence of this here, and elsewhere in our various analytical products.
· Some of the beginning (of the earnings improvement) begins right now. We are firmly optimistic regarding the earnings outlook for this smaller group of leading retailers, with better earnings trends beginning in the current fiscal quarter for some firms, and then with generally better comparisons for a larger number of merchandise retailers by Q3, or through October 2009. This would refer only to that group of leading retailers that will consolidate market share and capital expenditures and consumer mindshare for years to come.
· We are cautious regarding the Easter calendar shifts. We are cautious in our interpretation of March 2009 comparable store sales results since these are based upon a significant shift in the Easter calendar year-over-year, from March 23, 2008 to April 12, 2009 – one of the biggest shifts in recent years. However, Passover is occurring close to Easter this year, thus we would expect late March and early April sales to be somewhat better than expected.
· Historical references. This month’s analysis includes an historical table, for March 2001 through March 2009, with reference to some of the retailers that stopped publishing monthly sales results. This provides a better foundation for aggregate views of each year’s results. Looking at this, we find some of the following interesting outcomes:
KEY OBSERVATIONS:
Do not confuse “the consumer” with the healthier earnings direction of the industry. We would not, going forward, equate “the consumer” and “consumer spending” with the earnings potential of the smaller group of leading retailers. The industry is getting stronger despite deep and persistent weakness in the household sector. The number of retailers continues to consolidate, and shoppers continue to consolidate their loyalties among a select group of merchandise retailers. We provide some evidence of this here, and elsewhere in our various analytical products.
· Some of the beginning (of the earnings improvement) begins right now. We are firmly optimistic regarding the earnings outlook for this smaller group of leading retailers, with better earnings trends beginning in the current fiscal quarter for some firms, and then with generally better comparisons for a larger number of merchandise retailers by Q3, or through October 2009. This would refer only to that group of leading retailers that will consolidate market share and capital expenditures and consumer mindshare for years to come.
· We are cautious regarding the Easter calendar shifts. We are cautious in our interpretation of March 2009 comparable store sales results since these are based upon a significant shift in the Easter calendar year-over-year, from March 23, 2008 to April 12, 2009 – one of the biggest shifts in recent years. However, Passover is occurring close to Easter this year, thus we would expect late March and early April sales to be somewhat better than expected.
· Historical references. This month’s analysis includes an historical table, for March 2001 through March 2009, with reference to some of the retailers that stopped publishing monthly sales results. This provides a better foundation for aggregate views of each year’s results. Looking at this, we find some of the following interesting outcomes:
§ Excluding most consolidations, the number of retailers reporting this March 2009 was only 35 banners. In March 2005, the count was 50 banners. The simple average change in comp store sales for March 2009 was -8.6% compared to -6.5% in March 2008. March 2008 was badly impacted by record high gas prices and a deepening housing crisis.
§ The volatility within this data set has increased substantially. The standard deviation for March 2009’s 35 data points was a very high 123% compared to only 83% last year, and compared to 79% in March 2006.
§ March 2009 data showed continued and perhaps deeper resistance to higher prices. Specialty apparel retailers at higher price points including the entire Abercrombie & Fitch family; Dillard’s, Saks, Neiman Marcus, and even American Eagle, all showed very weak results either similar to the deepest sale declines of recent months, or in the case of Dillard’s, the sales decline seemed worse than anything we have seen from this retailer in recent memory.
· Embracing the opportunities. We would suggest to investors that the sector represents interesting opportunities for those willing to commit sufficient time and research to the smaller, more consolidated group of leading merchandise retailers, while observing that March and April sales results are always vulnerable to substantial distortions due to year-over-year placement of key holidays.§ The volatility within this data set has increased substantially. The standard deviation for March 2009’s 35 data points was a very high 123% compared to only 83% last year, and compared to 79% in March 2006.
§ March 2009 data showed continued and perhaps deeper resistance to higher prices. Specialty apparel retailers at higher price points including the entire Abercrombie & Fitch family; Dillard’s, Saks, Neiman Marcus, and even American Eagle, all showed very weak results either similar to the deepest sale declines of recent months, or in the case of Dillard’s, the sales decline seemed worse than anything we have seen from this retailer in recent memory.
