How Is Retail Doing This Quarter?

Earlier this week, the National Retail Federation reported that July retail sales, excluding automobiles, gas stations and restaurants, were flat, growing just 0.1 percent from June. Similarly, consumer confidence, which had been on a steady climb, remained stable from June to July. In a separate report, the U.S. Commerce Department similarly reported 0.1 percent growth in retail sales, the weakest growth since January. Economists had predicted such sales, which account for one-third of consumer spending, to increase by 0.2 percent last month. The Commerce Department also noted signs for increasing momentum ahead, however. “Given the strong gains in labor market activity, along with other indications of strengthening domestic growth momentum, we expect this slowdown to be short-lived, and we look for consumer spending to rebound strongly in the coming months,” Millan Mulraine, deputy chief economist at TD Securities in New York, said in a Reuters article on the sales statistics. This week also was a time when several of the nation’s leading retailers reported second-quarter earnings, including Walmart, Macy’s, Nordstrom, JCPenney and Kohl’s. As one would expect, the merchants are dealing with the issues the monthly sales data portray. And they’re also working through other trends as well, including boosts in mobile shopping and decreases in in-store traffic. Results were somewhat mixed, and perhaps skewed a bit when trying to compare one retailer’s performance versus another’s. JCPenney, for example, is trying to come back from a poor strategic plan set out by a former CEO, so it’s growth is coming from a performance level where relatively high growth would be expected. That pertain to same-store sales growth, where many retailers are simply trying to achieve flat year-over-year growth Common elements across the retail sector included high growth in online sales, and an increase in strategic planning to address today’s omnichannel environment. PYMNTS.com takes look at some of the key quarterly stats for these retailers, and the views of some of their leaders on their performance and industry trends. JCPenney Comparable-store (comp) sales increased 6 percent during the second quarter, the company’s third-consecutive quarter of same-store growth. Net sales were up 5.1 percent, to $2.8 billion from $2.66 billion, while the company’s net loss improved considerably, to $172 million from $586 million. Online sales rose 16.7 percent year over year, to $249 million. Looking ahead, the company expects same-store sales in the third quarter to increase in “mid-single digits, with full-year growth to be similar. Speaking to analysts Thursday (Aug. 14) about the quarter’s earnings, Ed Record, JCPenney chief financial officer, cited the “passion and commitment” of store staff in helping in the company’s turnaround. While still showing negative growth year over year, store traffic continues to improve, and the company’s dot-com traffic was up double digits for the quarter, he said. “Our store conversion, average transaction size, and average unit retail for the quarter were all up versus last year,” Record said. “Importantly, sales were strong during the final weeks of the quarter, which represent the beginning of the critical back-to-school shopping season.” Among the company’s key priorities moving forward includes enhancing the omnichannel experience, Record said. “JCPenney.com, which is a cornerstone of our strategy, continued to perform very well in the second quarter as it has throughout most of the turnaround,” he said. “Our dot-com growth is generated not only by increased traffic and average order value on jcp.com itself, but also from the growth of dot-com orders that originate in our stores.” Asked if he was pleased with the pace of the company’s turnaround, Record indicated he was. “Obviously, do we wish the sales came back faster? Yes. I think once you break that habit of the customer of where they go, you have to earn them back like every other customer. I think we have a little bit of tailwind in that,” he said. “But it’s not as easy as just putting back the merchandise that you had, and they’re going to come back. I think we all realize that, and I think it continues to be a fight out there and a very competitive environment. But I think we’re winning market share, and I think our results show that.” Kohl’s Comp sales during the quarter were down 1.3 percent, which compared with 0.9 percent growth a year earlier. Net sales totaled $4.24 billion, down 1.1 percent from $4.29 billion. Net income was $232 million, up 0.4 percent from $231 million. During a conference call with analysts Thursday (Aug. 14), Wes McDonald, Kohl’s senior executive vice president and chief financial officer, noted that average unit retail was up 3 percent, while units per transaction were down 1.1 percent, for an average transaction value increase of 1.9 percent. Transactions per store decreased 3.2 percent. Year-to-date comp sales decreased 2.3 percent, while total sales decreased 2.1 percent to $8.3 billion, he said. Also on the call, Kevin Mansell, Kohl’s chairman, CEO and president, said the decrease in Q2 comp sales was consistent with expectations. “More importantly, we saw strong improvement throughout the quarter,” he said. “Results were especially strong in July (comps up 2 percent) as we reported a positive comp for the first time in several months.” The July increase wasn’t driven by eCommerce sales alone, Mansell said. “We got a lot better in the brick-and-mortar stores as well,” he said. “The key is to get the brick-and-mortars from running negative to flat. That is what the rest of the businesses have to do over and above all the initiatives we’ve talked about.” Mansell also noted renewed momentum in the company’s eCommerce business, where sales last year were affected by a technology replatforming of the company’s eCommerce interface from July through October. “July sales this year returned to rates that we have not seen since updating our platform last summer,” he said. “They ran up over 30 percent.” Besides adding new brands to the retailer’s existing portfolio to drive more store traffic, the company plans to introduce other improvements to the shopping experience, he said. “We will be piloting Buy Online Pick Up In Store at approximately 100 stores this fall,” he said, noting the pilot will roll out nationwide “once successful.” “Buy Online Pick Up In Store provides our customers with another option to shop when they want and where they want,” he said. There is no single silver bullet to change the retailer’s trend in traffic, however, Mansell said. “It is going to require the intersection of a number of different initiatives all taking hold across the company,” he said. “That is how we’ll get positive traffic and that is the goal, but we are not relying on any of these individually to make it happen.” Macy’s Sales in the second quarter of 2014 totaled $6.3 billion, up 3.3 percent from total sales of $6.07 billion in the second quarter of 2013. Net income was $292 million, up 3.9 percent from $281 million. Comp sales together with comparable sales of departments licensed to third parties were up 4 percent. Second quarter comp sales were up 3.4 percent compared with Q2 2013, the company noted in its earnings release. Karen Hoguet, Macy’s chief financial officer, note during a Wednesday (Aug. 13) call with analysts that the company lowered its guidance for the full year to a comp increase of approximately 1.5 percent to 2 percent. “On an owned-plus-licensed basis, the annual comp is expected to be 2 percent to 2.5 percent,” she said. “We are expecting comp sales of 2 percent to 3 percent for the fall, and the licensed businesses should add 20 to 30 basis points to that comp growth in the back half of the year.” Bloomingdale’s had a stronger second quarter, as well as Macy’s, Hoguet noted, adding that Internet-generated demand continues to grow rapidly. “We believe that will continue, particularly now that we have rolled out Buy Online Pickup in Store, or what some people refer to as click and collect, to all the Macy’s and Bloomingdale’s stores,” she said. “We haven’t even marketed this capability yet, and we are already finding that many customers like this option. And once in the store, these customers are often buying other items as well.” It was too early to identify specifically how those customers are using the service, which rolled out a couple weeks ago, or how big it could become, Hoguet said, noting she hoped by fall season to understand it better and its potential. “We are excited, though, by what we have seen so far, and expect it to be a help in the holiday selling season,” Hoguet said. “Omnichannel strategies are clearly enabling us to accelerate growth, and we are just at the early stages of exploring all the opportunities.” Nordstrom Total company net sales of $3.3 billion for the second quarter rose 6.2 percent to $3.1 billion from a year earlier. Credit card sales were up 4.3 percent, to $96 million from $92 million, bringing total revenues to $3.39 billion, up 5.9 percent from $3.2 billion. Net earnings of $183 million were down slightly from $184 million a year earlier. Total comp sales increased 3.3 percent. Nordstrom comp sales, which consist of the full-line and direct businesses, increased 2.7 percent. Full-line comp sales decreased 1.2 percent. Direct net sales increased 22 percent year over year, driven primarily by expanded merchandise selection, the company said in its earnings statement.

On July 31, Nordstrom signed an agreement to acquire for $350 million payable in Nordstrom stock Trunk Club, a personalized clothing store for men founded in 2009. The deal is expected to close in the third quarter. During a conference call with analysts to discuss the quarter’s earnings, Mike Koppel, Nordstrom executive vice president and chief financial officer, said the deal represents the most recent example of how the company is looking to be more innovative. “The transaction aligns with our strategic priorities of accelerating our speed to market, increasing relevance with customers, and strengthening our capabilities,” he said. “Although we have some of the elements necessary to develop this offering, it would’ve taken us several years to match the level of execution of Trunk Club.” Walmart During the period ended Aug. 1, comp sales at Walmart were flat, though consolidated net sales were up more than $3.2 billion, or 2.8 percent, to $119.3 billion, the company reported Thursday (Aug. 14). eCommerce sales drove much of the gain, as they rose 24 percent globally on a constant-currency basis, with double-digit growth in the U.S., United Kingdom, China and Brazil. The flat same-store sales were particularly troubling to Doug McMillon, Wal-Mart Stores Inc.’s president and CEO, especially in Walmart U.S. and Sam’s Club locations. “Stronger sales in the U.S. businesses would have helped our profit performance in the quarter,” he said during a call with analysts to discuss the quarter’s earnings. “We can get better operationally, and we will.” While Walmart’s U.S. comparable-store sales were flat, they did represent an improvement compared with last year’s string of negative growth, Charles Holley, Walmart’s chief financial officer, noted on the call. Walmart U.S. net sales, including eCommerce, increased by $1.9 billion, or 2.7 percent, to more than $70 billion during the quarter. The company projects same-store sales will remain flat during the next quarter, which would be an improvement as well from last year’s 0.3 percent decline during the same period. Still, eCommerce is of particular importance to the company’s future. “We will continue to invest in areas such as technology, talent and fulfillment,” Holley said. “I would like to add that, although we are slightly revising our e-commerce sales growth to 25% for this year, we continue to be very encouraged by the progress we are making on our strategic goals.” Commenting on the company’s eCommerce activities, Neil Ashe, Walmart’s president and CEO of global eCommerce, noted how the company’s efforts to integrate the digital and physical worlds are offering customers easier and more convenient ways to shop. “We are working closely with the operating segments around the world to make all of this happen,” he said. While comparable-store Walmart U.S. location sales were flat, eCommerce sales grew by double digits, Ashe said. “The major highlight was that we started to roll out a new walmart.com site experience,” he said. “To the consumer, it’s simpler, it’s faster and it’s easier shopping experience. But it also represents a major technical feat that involves a top-to-bottom rebuild of our entire global technology platform.” Beside implementing a new global technology platform, the company also has been building next-generation fulfillment networks globally to deliver orders faster and more efficiently, Ashe said. Walmart has a new large-scale fulfillment center under construction in Indiana, which will complement those it has opened in Texas and Pennsylvania in the past 12 months. The company also enabled 20 more stores to fulfill online orders during the quarter, and 20 percent of units order on walmart.com are now shipped from stores, he said. “Our algorithms are helping to determine the optimal shipping point, whether from an online fulfillment center, a store [destination center] or a store,” Ashe said. “And in Brazil, we opened a new fulfillment center in Cajamar that is now fully  operational. We will announce additional fulfillment centers around the world over the coming months.”