For Immediate Release
Chicago, IL – September 7, 2010 – Zacks.com Analyst Blog features: Abercrombie & Fitch (ANF), Aeropostale Inc. (ARO), Gap Inc. (GPS), Del Monte Foods Co. (DLM) and Ulta Salon, Cosmetics & Fragrance Inc. (ULTA ).
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Here are highlights from Friday’s Analyst Blog:
Retailers Gain in August
The nation's retailers have reported unexpectedly strong August sales numbers as back-to-school requirements kept shoppers from restraining their spending plans. Retailers posted strong results on the heels of solid traffic and sales, albeit backed by heavy promotion and discounting in the back-to-school season. Further, tax-free holidays also provided a boost to the overall sales of the retailers. Seventeen tax-free holidays during August lured shoppers to the malls.
Looking back to only a year ago, the recession had the nation firmly in its grip, and the back-to-school season was somewhat sluggish as consumers were determined not to spend more. High employment rates, a falling housing market index and lower consumer spending made retailers uncertain of consumer behavioral trends. But this year has come as a breath of fresh air for the retailers.
Weather patterns also impact retail sales trends. Though high temperatures in many countries facilitated the clearance of discounted summer inventory, it impeded the sales of fall clothing. If the warm weather continues to persist in September, then retailers may be compelled to offer fall sweaters and jackets at discounted prices in order to move these items out the door.
Considering a recovery -- though this is now in question -- in the macro economy, the retailers are generally looking forward to a solid start to the third quarter of the year. However, the still heavily promotional and discounting climate may cause jitters to possible margin expansion. Conversely, such measures are helping many retailers to regain lost market share by offering unique merchandise and heavy discounts to consumers.
Abercrombie & Fitch Co.
When big teen retailers were fighting the battle of deep discounting and promotion, Abercrombie & Fitch (ANF) appeared to be one of the victors, registering same-store sales growth of 6% in August, handily surpassing the 29% drop last year. Continued promotional activity across all three concepts -- Abercrombie & Fitch, Abercrombie Kids and Hollister Co. -- contributed to the overall growth. Abercrombie & Fitch’s same-store sales jumped 9%; Hollister was up 7%, partially offset by a plunge in Kids’ same-store sales of 9.0%. Total sales for the month increased 14.0% to $353.7 million from $309.5 million in the year-ago period.
Aeropostale, Inc.
Aeropostale Inc. (ARO) reported a same-store sales decline of 1% for the month, compared with a rise of 9% a year ago. Despite the negative results, the company hinted that it experienced stronger sales in its peak back-to-school phase. Total net sales jumped 4.0% to $252.5 million from $241.7 million in the prior-year period.
Gap, Inc.
Gap Inc. (GPS) same-store sales for the month of August came in flat compared with a 3.0% decrease in the same period last year. Total sales also came in flat at $1.1 billion.
The flat same-store sales at The Gap emanated from a growth of 6% at Banana Republic North America and 5% in international comparable-store sales, countered by 1% shrinkage at Gap North America and 2.0% at Old Navy North America.
Although August results bode well for September and the ongoing back-to-school season, comparisons are tough in September because the industry began posting positive sales results in September 2009. The heartening same-store sales reported in August in the retailing sector is a prelude to a possible steady improvement in the following month as well.
Despite the general optimism as evidenced by August numbers, the overall recovery in the economy is still sluggish, with high unemployment levels dragging on the nation. Consumers, as a result, are tepid about consumer spending and are looking for more discount shopping. The retailing sector continues to face a number of headwinds, from tough comparisons to limited internal drivers. In summary, retailers that offer value for money and low prices are performing better in this lukewarm environment.
Del Monte Q1 Profit Slips
Del Monte Foods Co. (DLM), producer, distributor and marketer of branded pet products and food products, posted weaker top-line and earnings results for the first-quarter of 2011, a 13-week quarter ending on August 1, 2010.
Quarterly Details
San Francisco-based Del Monte’s earnings slipped to 29 cents from 30 cents a share in the year-ago period and missed the Zacks Consensus Estimate by 9 cents. The quarter highlights a marginal increase in marketing investment, consistent with the company’s Accelerated Growth Plan and a decline in top-line growth, offsetting savings from productivity initiatives.
For fiscal 2011, EPS from continuing operations is expected in the range of $1.38 to $1.42, consistent with the company's long-term EPS growth target of 7% to 9% for the year.
For the quarter under review, Del Monte’s total sales dipped 1.1% to $804.6 million, compared to $813.7 million for its 13-week quarter ended August 1, 2009, reflecting a decrease in volume of 1.6%. For fiscal 2011, Del Monte expects to generate revenue growth of 1% – 3% over fiscal 2010 sales.
Ulta Beats, Outlook Strong
Ulta Salon, Cosmetics & Fragrance Inc. (ULTA ) posted its second-quarter 2010 adjusted earnings of 25 cents per share, which were well ahead of the Zacks Consensus Estimate of 19 cents. Including one-time compensation charges, Ulta Salon recorded a quarterly net income of $13.1 million or 22 cents per share, well above $5.8 million or 10 cents recorded in the year-earlier quarter.
Total revenue in the quarter under review surged 17.6% year over year to $321.8 million. The increase was driven by a rise in comparable store sales, which jumped 10.8% from a decrease of 1.7% in the prior-year quarter, aided by an 8.0% increase in customer count as well as a 2.8% increase in average ticket. Management said the enhancement was balanced across all major categories and credited this marked improvement in results amid a sluggish economic recovery, to market share strategies implemented in 2009, dynamic marketing and compelling brands.
Inside the Headline Numbers
Gross margin expanded 350 basis points (bps) year over year to 32.3%, mainly on account of cost reductions derived from improved supply chain and leverage in marketing.
Selling, general and administrative expenses as a percentage of sales inched down 50 bps to 24.8%. Accordingly, operating income more than doubled year over year to $22.3 million, while operating margin grew 320 bps to 6.9%.
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ABERCROMBIE (ANF): Free Stock Analysis Report
AEROPOSTALE INC (ARO): Free Stock Analysis Report
DEL MONTE FOODS (DLM): Free Stock Analysis Report
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ULTA SALON COSM (ULTA): Free Stock Analysis Report
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