U.S. retailers faring well
Profits up despite Hurricane Sandy and fiscal cliff fears,
Washington and Hurricane Sandy weren’t able to ruin everything for retailers this year.
While one estimate put holiday sales gains at only 0.7 per cent, retailers from Macy’s Inc. to Abercrombie & Fitch Co. controlled inventories heading into the holidays, enabling them to limit discounts.
Analysts estimate earnings per share for consumer-discretionary retailers in the Standard & Poor’s 500 Index will increase about 13 per cent in the fourth quarter, according to data compiled by Bloomberg as of Dec. 21. A year earlier, profit slipped 3.4 per cent on a share-weighted basis.
“The retailers coming out of the holiday season on top have done an excellent job with their inventories,” Megan Donadio, a New Yorkbased retail strategist for consulting firm Kurt Salmon, said. “They’ve planned promotions carefully to ensure profitability.”
Retailers are increasingly using sophisticated analytics in planning promotions, deciding how much to order based on previous sales and industrywide demand, Donadio said. Most chains secured holiday goods months before Sandy hit in October, reducing the harm from power failures and transportation interruptions in the Northeast.
Consumers also have been resilient. While Republicans and Democrats have been unable to agree on a plan to avoid federal spending cuts and tax increases of $600 billion that would come into effect in January without action by Congress, the Bloomberg Consumer Comfort Index was little changed at minus 32.1 in the period ended Dec. 23, near a four-year high.
Ewing Concepcion, a 21-year-old student at Merrimack College in North Andover, Mass., said he spent more this holiday season while snagging fewer deals.
“I paid full price for a lot of stuff this year,” Concepcion said while shopping Wednesday at the Mall at Rockingham Park in Salem, N.H.
Retailers have got better at managing their inventories in recent years, keeping them from having to resort to steep discounts to prevent merchandise from piling up. The improvement will show up in a company’s gross margin, or the portion of sales left after subtracting the cost of goods.
Retailers projected to have wider gross margins this season include Ralph Lauren Corp., whose gross margin may expand to 59.2 per cent of sales in the quarter ending Dec. 31 from 57.1 per cent in the same period a year ago, according to the average of five analysts’ estimates compiled by Bloomberg.
The New York-based apparel maker pursued a “very crisp and very direct” approach in selling holiday items in department stores, Jackwyn Nemerov, an executive vicepresident at Ralph Lauren, told analysts on a conference call in November.
Coach Inc.’s gross margin will widen by more than 0.2 percentage points to 72.4 per cent in the three months ended Dec. 31, analysts estimate. The margin at Macy’s, the second-largest U.S. department-chain, may be little changed at 40.9 per cent.
Falling costs, including a 16 per cent decline in cotton prices this year, are helping apparel sellers. VF Corp., which sells Wrangler jeans at retailers from Wal-Mart Stores Inc. to Gander Mountain Co., expects to post its highest-ever quarterly gross margin in the fourth quarter, Chief financial officer Bob Shearer told analysts in October.
“The industry is better positioned this year with the easing of apparel cost pressures,” Michael Niemira, chief economist for the International Council of Shopping Centers, said. “That should help their margins. To that extent, it’s a better environment for the retailer.”