State of US Same-Store Sales - Dec. 2009 Data Update and Full-Year Outlook
Retailer Daily has compiled comparable store sale data from the SEC filings of 26 major US retailers spanning several years, up to the most recently released December numbers. The data excludes fuel sales (which would have distorted numbers because of high gas inflation, then deflation, in 2008) and is available in Excel format from the link below:
Drugstore
- Walgreens reported a 0.3% decrease in December 2009.
- Rite Aid reported a 1.8% decrease in December 2009.
- CVS reported a 5.7% increase in Q3 2009.
Department Store
- Macy’s reported a 1% increase in December 2009.
- JCPenney reported a 3.8% decrease in December 2009.
- Gap reported a 4% decrease in November 2009.
- Kohls reported a 4.7% increase in December 2009.
- Sears reported an 12.5% decrease in Q2 2009.
Discount
- Wal-Mart reported a 0.5% decline in Q2 2009.
- Target reported a 1.8% increase in December 2009.
Dollar Store
- Family Dollar reported a 2.4% increase in Q1 2010.
Discount Warehouse Club
- Costco reported a 2% increase in December 2009.
- Sam’s Club reported a 0.6% increase in Q2 2009.
Automotive
- Advance Auto reported a 4.7% increase in Q3 2009.
- AutoZone reported a 5.4% increase in Q3 2009.
Fast Food
- McDonald’s reported a 0.6% decrease in November 2009.
- Burger King reported a 2.8% decrease in October 2009.
- Arby’s reported a 9% decrease in October 2009.
- Wendy’s reported a 0.1% decrease in October 2009.
Office Supply
- Staples reported flat sales in Q3 2009.
Consumer Electronics
- Best Buy reported a 4.6% increase in its Q3 fiscal 2010.
General Monthly Analysis
Drugstore
In the drugstore vertical, Walgreens, which set sales records for the first quarter of its fiscal 2010 (ended November 30, 2009) and the second, third and fourth quarters of its fiscal 2009, somewhat surprisingly reported its second same-store sales decline of 2009 in December (the first was in February). In late November, Walgreens relaunched the Walgreens.com e-commerce site with new resources, tools and services. These included services designed to increase store traffic including mobile ordering of prescriptions and prints, as well as online browsing and ordering of in-store products and a store locator tool for both mobile and desktop devices.
In the months ahead, Walgreens may also see the benefits of expanded rollout of its Customer Centric Retailing (CCR) store format that that streamlines assortments and devotes more store selling space to skin care and cosmetic products. Walgreens is confident enough in its ongoing success to purchase 12 Massachusetts stores from local drugstore chain Eaton Apothecary, which plans to go out of business. Most likely the December dip was an anomaly and Walgreens will start reporting positive same-store sales growth again this month.
Struggling drugstore chain Rite Aid, which reported same-store sales declines in five of the first eight months of 2009, saw same-store sales fall 1.8% in December after falling 0.8% in November and 0.5% in October. Rite Aid, which reported declining revenues and same-store sales in its fiscal Q3 2010 (ended November 28, 2009), can take some comfort in the significant reduction of its net loss during the quarter. In addition, Rite Aid auctioned 26 surplus properties last month for an undisclosed dollar amount. The retailer is also testing a new customer rewards plan in several markets to help gain competitive traction.
Meanwhile, leading drugstore retailer CVS, which only releases same-store sales figures by the quarter, reported a 5.7% same-store sales increase in Q3 2009, a quarter in which CVS saw net earnings, revenues and gross profit rise.
Department Store
Upscale department store retailer Macy’s, which had reason to be at least mildly optimistic about its same-store sales in October but lost that reason in November, regained hope in December. Macy’s same-store sales rose 1% in December, following a substantial drop in same store sales decreases from their August levels through September and October and rise in November. This month, Macy’s announced it will close five underperforming stores by March 2010, which may slightly boost overall same-store sales this year. Macy’s is rolling out a new merchandise localization program, so it will be worth watching Macy’s same-store sales in the upcoming months to gauge the effectiveness of that initiative. In other notable upcoming merchandising activities, Macy’s plans to roll out 430 in-store branded Sunglass Hut boutiques between spring 2010 and spring 2011.
JCPenney also experienced a mild December rebound following a difficult autumn. Although JCPenney reported a 3.8% same-store sales drop for the month, this was a stark improvement from declines of 5.9% in November and 4.5% in October. JCPenney reported declining same-store sales for every month of 2009, with December’s decline coming in as the second-lowest after a 1.4% drop in September. JCPenney has been actively promoting a variety of new online services and licensed private label goods.
Kohl’s, which reported a 3.3% increase in November following a 1.4% increase in October and impressive 5.5% increase during September, continued that trend with a 4.7% climb in December. Kohl’s has also been heavily involved in selling licensed private label merchandise and has entered a number of celebrity merchandising partnerships to boost sales with the female tween audience.
Not all department store retailers have recently had reason to feel confident, however. Sears, which recently reported soft results for Q3 2009, should be disappointed with its same-store sales drop considering the numerous activities it has recently undertaken to launch new product lines and improve multichannel customer service. Sears saw its same-store sales loss grow to its highest point of the year in July and apparently is not yet seeing benefits.
Gap, which did manage to lower its same-store sales decline from 6% in October to 4% in November, continues to struggle to connect with consumers. Gap recently launched a major strategic initiative to regain market share in its three store banners. The initiative includes efforts to improve assortment, product categories, in-store customer experience, and advertising and marketing.
Discount and Dollar Store
The continuing same-store sales declines at many department stores, shrinking or not, signals that the vertical continues its slump from the last several months. The discount vertical traditionally poses the biggest challenge to department store retailers, and discount leader Target reported a 1.8% same-store sales improvement in December. This was Target’s best month for same-store sales in 2009, and only the second month it reported a same-store sales increase besides a 0.3% hike in April. Target’s same store sales increase may have come at the expense of revenue, as in its guidance for Q4 2009 (beginning November 1, 2009), Target cautioned that a “highly promotional” holiday season could negatively impact overall fiscal results.
Discount leader Wal-Mart, which switched to a quarterly same-store sales reporting format last year, saw its same-store sales drop during the second and third quarters of its fiscal 2010 (ending in July and November 2009). Meanwhile, consumers at all income levels are starting to turn to dollar store retailers for many purchases. The most recent quarterly same store sales results from major dollar store players Family Dollar and Dollar General are indicative of this growing trend.
Previous Analysis
Fast Food
Fast food retailers experienced same-store sales decreases across the board in October, and vertical leader McDonald’s continued that trend in November. The October Restaurant Performance Index (RPI) corroborates a general malaise in the restaurant vertical. As a result of a slight gain in the future-looking Expectations Index, the RPI rose from 97.5 in September 2009 to 98 in October 2009, gaining 0.5 percentage points. This is the Index’s first monthly increase in three months and second increase in the past seven months. The Index has remained below 100, signifying contraction, for 24 straight months.
Office Supply
In the office supply segment, vertical leader Staples reported flat quarterly same-store sales. In its Q3 2009 fiscal report, Staples said flat same-store sales reflected positive customer traffic for the first time in nine quarters; as well as strength in computers, ink and toner, offset by weakness in durable categories such as business machines and furniture.
Consumer Electronics
In the consumer electronics vertical, Best Buy reported a 4.6% same-store sales increase. According to Best Buy, this gain was driven by increased traffic and an improvement in average ticket. Best Buy said in its Q3 fiscal 2010 report that traffic increased over the prior year period for the second consecutive quarter. Comparable store sales gains in notebook computers, flat panel televisions, mobile phones and appliances were partially offset by decreases in gaming, movies and music.
In addition, according to Best Buy, domestic comparable store sales improved sequentially each month of the fiscal quarter, finishing with an 8.4% increase in the fiscal month of November as the company experienced low-double digit comparable store sales gains on Friday and Saturday of the Thanksgiving holiday shopping weekend. Furthermore, Best Buy reported that domestic online sales for the fiscal third quarter increased more than 20% versus the prior year period on higher website traffic and average ticket.
Home Improvement
In the home improvement vertical, The Home Depot and Lowe’s both recently reported declining net earnings for Q2 2009. Based on second quarter performance and their own forecasts, Home Depot and Lowe’s should continue to produce sluggish results for the remainder of fiscal 2009. While The Home Depot and Lowe’s were both fairly quiet during Q2, Home Depot publicly discussed financial expectations, strategic priorities and long-term operating targets during its 2009 investor and analyst conference In addition to its expectations for a 9% drop in sales, Home Depot also predicted comparable store sales to decline in the high-single digit area and gross margin expansion to be flat to slightly positive. In the long term, Home Depot said it believes that its strategic priorities, along with a correction in the home improvement market, will allow it to achieve an operating margin of approximately 10% and a return on invested capital of approximately 15%.
Wal-Mart Poses Cross-Vertical Threat
Retailers in verticals such as drugstore, consumer electronics, supermarket, toys and arts and crafts face a new, heightened challenge from discount giant Wal-Mart. The retailer launched a new program called Project Impact earlier this year, designed to improve customer service and knock vertical competitors out of business. Project Impact includes features such as less crowded aisles with better sight lines, more convenient placement of consumables, improved assortments, and more prominent promotion of vertical products. If Project Impact is successful, numerous vertical retailers may see their same-store sales slip.
Same-Store Sales Influencers
Sales for existing stores typically reflect a combination of (a) the robustness of consumer consumption in their individual trading areas and (b) the local standing and competitiveness of each store within its trading area. Among other criteria, retailers look at average order size multiplied by the number of transactions during the period to identify sources of revenue growth per store. Growth might, for instance, be driven by a more expensive product mix if, say, a retailer started successfully upselling higher-end products to its customers.
Another issue affecting same-store sales is trading-area saturation, whether because of competitive pressure or self-inflicted causes. Home Depot, for instance, stated in a recent SEC filing that it opened stores “near market areas served by existing stores (“cannibalize”) to enhance service levels, gain incremental sales and increase market penetration…. [N]ew stores cannibalized approximately 9% of our existing stores as of the second quarter of fiscal 2008, which had a negative impact to comparable store sales of approximately 1%.”
Declining same-store sales can increase the weight of selling, general and administrative expenses (SG&A) as a percentage of sales. For instance, Home Depot said in 2008 that its “deleverage in SG&A reflects the impact of negative comparable store sales, where for every one percentage point of negative comparable store sales, we expect to deleverage expenses by about 20 basis points.” Also, Mapping of the 155 stores closed by Circuit City in November 2008 showed that overlap in some markets probably contributed to under-performance there. Were the current recession to last, it is quite likely that retail density will decrease with more store closures in areas showing the most overlap.