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January store sales rise
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February 5, 1998: 11:19 a.m. ET
Discounts fuel gains, whip inventories into shape, but bottom line may suffer
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NEW YORK (CNNfn) - Deep discounting helped fuel apparel sales in January at the cost of the retailers' bottom lines.
But the seemingly endless promotions have brought inventories down to healthier levels and could position retailers for future growth, analysts said.
"The sales are reasonably good. I think the most important thing is that inventories are in shape. So, the outlook for the coming year seems to be pretty positive," said Ross Margolies, portfolio manager at Salomon Brothers Asset Management.
Among the nation's largest retailers, Wal-Mart Stores (WMT) said same-store sales (from stores opened at least a year) rose 6.4 percent while Kmart (KM) shook off its December sluggishness to post a 4 percent gain. Sears Roebuck (S) reported a 5.4-percent increase.
"Categories showing particular strength for the month included jewelry, home fashions, electronics, seasonal items, stationery, horticulture, cosmetics, consumables, books and photography," Floyd Hall, chairman, president and chief executive of Kmart, said in a statement.
A notable exclusion from the Kmart official's comments was the apparel sector, which showed gains only in the wake of deep discounting. Retailers such as Talbots (up 19.7 percent) and AnnTaylor Stores (up 1.1 percent) were able to turn around their sales trends, but analysts were quick to point out that operations have yet to turn around.
"Sometimes when retailers get big same-store sales increases, you have to look behind the numbers," said Dana Telsey, retail analyst at Bear Stearns.
"If you walked by Talbot's stores anytime in the month of January [you saw] anywhere from 30 to 60 to 70 percent off. By taking a fourth markdown in their stores, they were able to clear out inventories, but it certainly came at a cost to margins," Telsey said.
Like many other analysts who follow the women's apparel retailer, Telsey forecasts a loss for Talbot in the recently completed fiscal fourth quarter. The consensus estimate from First Call is a loss of 31 cents. (174K WAV) (174K AIFF)
Similarly, AnnTaylor faces a bleak outlook because its promotions have depleted its inventories, hampering the retailer's ability to utilize discounting strategies.
"They don't have enough promotional inventories in the stores. They'll only be selling full-price and they're already giving out warnings of negative same-store sales declines in February," Telsey said.
Still, retailers in general will benefit throughout the year from the devaluation of Asian currencies, which has made imported goods relatively more affordable.
"They'll be able to offer some very attractive merchandise to the customers," Salomon Brothers' Margolies said.
Department stores post results in line with expectations. Federated Department Stores, parent company of Bloomingdale's and Macy's, reported comparable store sales rose 1.5 percent. May Department Stores reported a 2.7-percent increase while Dayton Hudson reported a 4.6-percent gain.
Troubled big names continued to face difficulties in the wake of shrinking volumes. Woolworth reported a 3.1-percent drop and J.C. Penney said sales fell 5.4 percent.
"That's disappointing. I think they [Penney] are having some category shifts going on with some of their merchants. They have been promoting but obviously their merchandise isn't appealing to the consumer these days," Telsey said.
Meanwhile, home furnishings continued to outshine other retail sectors. Pier 1 Imports, for example, reported a 21.7 percent jump.
"As you can see, Christmas is spread out -- not just among December but among January as well. Promotions certainly helped to drive those sales and you can see what the consumer is looking for. It all depend on price," Telsey said.
-- from staff and wire reports
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