Janney Capital Markets
Over the weekend, we witnessed a slight uptick in mall traffic
as the cold weather snap in the Northeast helped drive need-based
purchasing.
This past weekend, year-over-year promotional activity was
"flat-to-slightly deeper," similar to last week; however, we even
noted a few "flat-to-slightly better" (less deep) promotions. We
believe October has been challenging for retailers, particularly
after Columbus Day and expect comparable-store sales to be below
expectations. Despite October's clearance nature, we are concerned
with an increase in "deeper" promos year-over-year, especially as
inventories were well-controlled entering the third quarter.
Promotional cadence improves sequentially; generally
third-quarter-to-date promos have been "flat to deeper," a
sequential improvement from the first half. Our weekly promo
analysis has suggested the flattening out of year-over-year
promotional activity through September, which we deem to be
supportive of merchandise margins. However, October has appeared to
be more challenging. This past weekend year-over-year promotional
activity was "flat-to-slightly deeper," similar to last week;
however, we did note a few "flat-to-slightly better" (less deep)
promotions, and promotional activity has improved since the worst
weeks post-Columbus Day.
With August and September seemingly "okay," October seems below
plan; next shopping event Black Friday; for the third quarter,
expect weak top line, potentially offset by conservative inventory
plans. With October typically a clearance month, and the next
significant shopping event Black Friday, we believe retailers must
rely on inventory conservatism to preserve merchandise margins and
begin to control promotions better on a year-over-year basis. We
point out that earnings should be supported by merchandise margin
stabilization, though negative comps are likely to continue for
many retailers.
Companies likely to make or beat current quarter consensus:
American Eagle Outfitters (ticker: AEO); Bebe Stores ( BEBE);
Express ( EXPR); Francesca's Holdings ( FRAN); Lululemon Athletica
( LULU); Children's Place ( PLCE); Urban Outfitters ( URBN); and
Zumiez ( ZUMZ).
Companies with potential risk to quarter: Abercrombie &
Fitch ( ANF); Aeropostale ( ARO); Ann ( ANN); Buckle ( BKE);
Chico's Fas ( CHS); Gap ( GPS); New York & Co. ( NWY); and
Pacific Sunwear of California ( PSUN).
-- Adrienne Yih-Tennant
-- Gabriella Carbone
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