Economic Headwinds Curb Expected Growth in Same-Store Sales for June
Facing tough year-ago comparisons, retailers battle macroeconomic headwinds to try to deliver June sales, but analysts predict SSS growth will be a meager 0.6% overall.
Recent weeks have delivered a lot of weaker-than-expected pieces of economic data for investors to mull over. Now, they’ll need to brace themselves for another batch of underwhelming news in the shape of what analysts expect to be the weakest growth in same-stores sales among U.S. retailers in nearly three years. The Thomson Reuters Same Store Sales Index currently forecasts that retailers will report that their same-store sales increased a mere 0.5% in June, well below the 6.7% gain recorded in June 2011. That’s the toughest year-over-year comparison retailers have confronted since November 2007, when SSS climbed 6.8%, but macroeconomic worries compound this. Consumer confidence fell in June, reflecting concerns about the uptick in the jobless rate in the United States, and other economic signals have also fueled the level of anxiety among shoppers. The result? Consumers appear to be holding off on spending as readily as they had been doing earlier in the year.
If retailers overall are facing tough comparisons, the challenge was particularly acute for Costco (COST.O), which had to try to beat a 14% gain in SSS reported in June 2011. Analysts polled by Thomson Reuters now believe the company will report a 3.7% gain, a level that, while it may look muted compared to year-ago levels, is still a robust performance. (Generally speaking, any SSS reading north of 3% reflects a healthy level of spending.)
Zumiez (ZUMZ.O), the teen retailer that boasts one of the most robust track records in same-store sales, once again looks likely to lead the retailers in the Same Store Sales Index, with analysts projecting it will report an 8.4% increase in SSS for June. That healthy growth in sales may result in better-than-expected earnings: Analysts polled by StarMine suggest that the company is likely to post second-quarter profits that are slightly better than expected, bucking the trend among teen retailers, which analysts expect will see a decline of 0.9%, a stark contrast to their 9.2% jump in June 2011. One of Zumiez’s teen retailing rivals, The Buckle (BKE.N) is one of the laggards in this group and weighs on the overall index; analysts predict that sales will remain flat over year ago levels and that its second-quarter earnings may fall short of estimates. Wet Seal, analysts believe, is likely to post a 7.7% slump in SSS for June.
A glance at this month’s expected leaders reveals a familiar list. The Department Store group is likely to post a 1.0% gain in SSS for June, compared to the 6.8% advance announced in June 2011, but the more upscale members of that sector are likely to demonstrate more robust SSS growth; analysts are projecting that both JW Nordstrom (JWN.N) and Saks (SKS.N) will see SSS grow 4.7% in June. At the other end of the spectrum is Kohl’s (KSS.N), which analysts expect to post a 3.2% decline in SSS for the month. The Victoria’s Secret retail division of Limited Brands (LTD.N) continues to provide a big boost to its parent company. While SSS for Victoria’s Secret almost certainly will fall below the impressive 17% gain it reported in June 2011, analysts still expect it to report SSS of 3.6%; Limited itself is likely to post a 2.4% gain in SSS for June, analysts believe, compared to its 12% gain in the previous year. Gap (GPS.N) remains a problem for the Apparel sector, with a 0.1% gain in SSS anticipated by analysts, with international sales (expected to fall 2.2%) weighing on those results. The overall outlook for SSS among Apparel retailers is modestly positive, with analysts calling for a 2.2% gain in SSS.
Other June leaders include Ross Stores (ROST.O), which analysts expect will post a healthy 4.8% advance in SSS for June, and discount retailer TJX Co. (TJX.N), which has a forecast SSS gain of 4.2%. The laggards include Gap, Wet Seal and Kohl’s, but are led by drugstore chain Walgreens (WAG.N), with a forecast decline of 8.2% for SSS in June. The company recently made headlines by agreeing to buy a 47% stake in Alliance Boost for $6.7 billion in what some analysts viewed as an attempt to stem its decline in domestic SSS. (As reported previously on AlphaNow, the market greeted that initiative warily.)
For more insight into what analysts expect from SSS for June, and the potential impact on quarterly earnings results, please click here to read the full report.
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