By the numbers: How holiday sales are panning out
Tiffany, among the latest retailers to release holiday numbers, reported a slip in sales as Chinese tourists spent less.
The holidays are always important to retailers' full-year results, and this year yielded a boom. Not even emerging signs of some weakness in the economy and in consumer confidence did much to keep holiday shoppers from spending.
Several retailers reaped the benefits, but it wasn't a simple matter of opening doors or even massively discounting. Those that overhauled stores to entice and delight shoppers, and made it easy to shop on or offline, tended to get the sale. By contrast, retailers offering less-than-delightful experiences missed out. That could be a problem for them this year, when consumers look to have less of an inclination or ability to spend.
Holiday sales reports are coming in now, and retail stocks, including of those that did well, fell early Jan. 10 on the news, with Bank of America downgrading Macy's after its report, according to CNBC. It's becoming clearer which retailers are poised to weather challenges surfacing in 2019, and which are not.
Tiffany & Co.
The strong dollar did Tiffany & Co. no favors over the holidays as it shrunk tourists' spending power, especially among Chinese travelers. The jeweler on Friday reported sales that just missed its expectations for "modest year-over-year growth." Instead, worldwide net sales for the two months ended Dec. 31 fell 1% to $1.04 billion as comparable sales declined 2%. In his statement, CEO Alessandro Bogliolo took care to note that Chinese customers are still spending at home in the mainland, where sales grew "by a double-digit percentage," and that the company also enjoyed "solid results in Japan and healthy growth in global ecommerce sales." While investors have grown wary of an economic slowdown in China, Bogliolo said demand is softening in the Americas and Europe, which he said "may have been influenced more than expected by external events, uncertainties and market volatilities."
Although the company lowered its full-year expectations in the report, Tiffany has positioned itself — through moves like ongoing updates to stores, appealing jewelry designs and new transparency around diamond sourcing — to withstand many of those pressures. "[T]he company is in very early days with tangible initiatives to better leverage the brand and become a meaningfully more efficient operation," William Blair analyst Dylan Carden said in comments emailed to Retail Dive.
GameStop on Friday reported that total global sales for the nine weeks ended Jan. 5, fell 5% year over year to $2.63 billion, as total comparable store sales rose 1.5%, which reflects a 3.6% increase in U.S. sales partially offset by a 3.1% decrease internationally. COO and CFO Rob Lloyd said that the company's strong holiday, which came after relatively strong sales last season, was thanks to "strong sales in accessories, collectibles and digital which more than offset the decline in pre-owned sales and new video game hardware sales."
But the retailer's woes, which have included a revolving chief executive door after the death of its longtime CEO, are not over amid a gaming market that continues to drift to the internet.
"The results nonetheless continue to show weakness in the company's new video game and pre-owned segments, emphasizing the importance of the strength of new game titles as well as the company's vulnerability to new hardware cycles and a weakened pre-owned software and hardware environment," Moody's Investors Service analyst Adam McLaren said in comments emailed to Retail Dive.
Nordstrom's holiday comp sales, (for nine weeks ending Jan. 5), rose 1.3%, according to a Jan. 15 press release. The retailer's off-price Rack unit did most of the work, as comps there rose 3.9%, per the company's trend and expectations, and digital sales soared 18% year over year, reaching 36% of sales. But holiday traffic was softer at the company's flagship stores, which missed expectations as comps edged up only 0.3%. It took higher markdowns to move merchandise during the period, and that will pinch profits, the department store said, warning that earnings will land at the low end of its previous outlook.
The results didn't shock investors, as they pretty much met analyst expectations, and William Blair analyst Dylan Carden said in comments emailed to Retail Dive that they support his team's existing "caution," adding, "Nordstrom fundamentals will need to hold up" for analysts to continue to take such results in stride. Indeed, not all did: Goldman Sachs downgraded Nordstrom on the report, citing "fading confidence" in the company's full-line stores.
Lululemon athletica Jan. 14 upgraded its fourth quarter guidance, saying it now expects net revenue to range between $1.14 billion and $1.15 billion (up from between $1.11 billion and $1.13 billion) based on a total comparable sales increase in the mid-to-high teens on a constant dollar basis (up from a forecast for comps growth in the high-single to low-double digits). The heightened expectation reflects momentum over the holidays and "the ongoing success of our product offerings and our connection with guests around the globe," according to CEO Calvin McDonald. The athleisure innovator has expanded its reach to men and is being embraced by finicky teens, but is also facing more competition as Gap, and more recently Nike, unroll their own efforts in its space.
Barnes & Noble
Barnes & Noble may still be struggling to find a new CEO — and a buyer — but that didn't deter customers this holiday season. Comps at the bookstore chain rose 4% between Black Friday and New Year's Day; Comps also rose 1.3% for the nine-week holiday period ending Dec. 29, 2018, marking the best sales performance in several years, according to a regulatory filing with the SEC.That's thanks to a new advertising campaign, an improved website and increased promotions, the company also said. Despite the positive report, the company also noted in its annual report that full-year comps declined 5.4%.
"Although we got off to a slow start, sales picked up momentum as we moved deeper into the season, and we finished strongly in accordance with our expectations," Barnes & Noble Chairman Len Riggio said in a statement emailed to Retail Dive.
Costco keeps galloping along, and the holidays were no different. The retailer Jan. 9 reported that, for the five weeks ended Jan. 6, net sales rose 7.8% to $15.4 billion from $14.3 billion last year, as net sales during the 18 weeks ended Jan. 6 rose 9.5% to $53 billion from $48.4 billion in the year-ago period. Comp sales (excluding the impacts of gas prices, foreign exchange and a new revenue recognition accounting standard) rose 7% in December as e-commerce sales rose 23.9% — a slowdown from last month's 34% rise but in line with results in the last five months, noted UBS analyst Michael Lasser.
"While the company's digital value proposition remains strong, it came during a period when competitors such as [Amazon] and [Target] became more aggressive on free shipping thresholds," Lasser said in comments emailed to Retail Dive, noting, however, that Costco may benefit as both bring back their usual shipping requirement. More importantly, the warehouse club "maintained much of its recent momentum," Lasser said. "Its top notch merchandising ability and unique value proposition continues to attract both new members and incremental spend from existing members. We see this dynamic continuing in CY'19, helping to justify its premium valuation."
Victoria's Secret, which saw December comparable sales fall 6%, driven by a decline in lingerie and PINK, continues to vex L Brands, and the holidays didn't bring much relief. The company Jan. 10 reported that net sales fell to $2.48 billion for the five weeks ended Jan. 5, compared to $2.52 billion for the five weeks ended Dec. 30, 2017. Overall comparable sales were flat in the period, year over year.
Victoria's Secret's comp tumble was driven by a decline in lingerie and PINK, and the merchandise margin rate was down "significantly to last year, driven by increased promotional activity," according to a company transcript of its conference call. Bath & Body Works comps, by contrast, rose 11%, driven by strong results in both the holiday and semi-annual sale periods. In short, the company's holiday story held no surprises. "[I]t was very much the same story we have seen for several months in a row now – misses/weak results at VS being completely offset by meaningful beats/strength at [Bath & Body Works]," Wells Fargo analysts led by Ike Boruchow wrote in comments emailed to Retail Dive.
In the New Year, the lingerie brand's semi-annual sale continues. Then comes Valentine's Day and possibly an effort to right-size its footprint, at least if Boruchow's hopes are fulfilled. "US store count remains at an all-time high (which is nearly unheard of for legacy retailers today) and highcost flagships are likely a meaningful drag on profitability," he wrote.
The holidays were pretty happy at Urban Outfitters, Inc., whose brands include Anthropologie, BHLDN, Free People, Urban Outfitters, and a food and beverage division. The company Jan. 10 said that total net sales for the two months ended Dec. 31 rose 5% year over year, as wholesale net sales rose 3%, according to a company press release. Retail comps also rose 5%, driven by strong, double-digit growth in e-commerce, partially offset by negative retail store sales. By brand, comps at Free People rose 6%, 5% at Urban Outfitters and 4% at Anthropologie.
Happy days are poised to continue, even if the consumer confidence that characterized the season begins to ebb, according to Morgan Stanley analysts. The retail company "could sustain [mid-single digit] comps even in a less robust consumer spending environment," they said in comments emailed to Retail Dive, because current fashion trends seem to favor its brands, and thanks to its speedy supply chain, which "bolsters [its] merchandising strategy." But William Blair analyst Dylan Carden, who in comments emailed to Retail Dive deemed Free People a "standout," called the overall negative holiday store comps "troubling," and warned they could pose a profitability problem for the Urban Outfitters and Anthropologie brands.
Kohl's on Jan. 10 raised its fiscal 2018 diluted earnings guidance from $5.35-$5.55 per share to $5.50-$5.55, based on nine-week holiday comp sales growth of 1.2%. The report disappointed some investors, but, with tough comparisons from last year (when comps grew 6.9%), the retailer "executed well," according to GlobalData Retail Managing Director Neil Saunders, who also called the results a "victory." The retailer protected margins with fewer discounts, alleviating pressure from its omnichannel investments, and GlobalData research found that Kohl's brought in more shoppers, especially in apparel and athleisure. "Kohl's is executing and delivering in a consistent way with some good progress on both the top and bottom lines," Saunders said in comments emailed to Retail Dive. "As sales comparatives soften…we expect growth to pick back up a bit as the company moves more fully into 2019."
Macy's on Jan. 10 reported that November/December comparable sales on an owned plus licensed basis rose 1.1% (owned merchandise rose 0.7%) and that e-commerce grew in double digits. The season started strong, especially during Black Friday and Cyber Week, but weakened in mid-December and didn't recover until Christmas week, according to a statement from CEO Jeff Gennette. The results suggest that store comps are negative, "an unsatisfactory position given the strong economy and the fact Macy's has supposedly offloaded its weaker branches," GlobalData Retail Managing Director Neil Saunders wrote in comments emailed to Retail Dive. "The weak holiday performance now raises a big question mark over Macy's recovery strategy."
Target appears to have hit another holiday bullseye. Comparable sales rose 5.7% during the November and December period, which marks a total 9% growth over the last two years, the company reported Jan. 10. Comps grew in all five of the company's core merchandise categories, with particular strength in toys, baby and seasonal gift items. That growth is thanks to an uptick in traffic and a small increase in average ticket. Store Pickup and Drive Up programs were up 60% over last year and made up 25% of the company's digital sales during that period. Target also said it's on track to grow its full year digital sales by more than 25%, for the fifth year in a row.
Target's strong performance highlights the positive impact of the company's $7 billion investment to enhance stores and digital operations, Moody's lead retail analyst Charlie O'Shea said in a statement emailed to Retail Dive. "Margins will be the next shoe to drop, with our view that when the dust settles, Target will be one of the top performers for holiday 2018," O'Shea said.
The holidays were rough on J.C. Penney, which Jan. 8 reported a nine-week holiday comparable store sales decline of 3.5% on a shifted basis (adjusted for the timing of the sales) or 5.4% unshifted. The retailer will close three stores this spring as it continues to evaluate its footprint. Despite a bigger toy assortment, Penney wasn't able to capitalize on Toys R Us's departure from the scene, though its biggest disappointment continues to be in apparel. Stores were lackluster, in contrast to the spiffiness found at Target and elsewhere, according to GlobalData Retail Managing Director Neil Saunders, who warned that this year could be even tougher as the economy slackens. "[T]he fact that the company cannot trade successfully in even the most auspicious of circumstances does not bode well for a year that will be more challenging than 2018," he said in comments emailed to Retail Dive.