(FROM THE WALL STREET JOURNAL 2/27/15)
By Suzanne Kapner
Shoppers are making a comeback especially to retailers catering
to lower income Americans, a sign that a battered segment of
consumers is on the mend.
Kohl's Corp. and J.C. Penney Co. on Thursday both said more
shoppers visited their stores in the fourth quarter and spent more
money on each trip compared with a year ago, echoing similar
results from Wal-Mart Stores Inc. and Target Corp.
Penney's transactions increased around 5% for the period.
Meanwhile, Kohl's said traffic rose 2% and shoppers spent 1.7% more
on each transaction. That helped drive sales 3.7% higher, excluding
newly opened and closed stores for the quarter ending Jan. 31, its
highest quarterly level in four years.
"We're back," said Penney Chief Executive Myron "Mike" Ullman
III. "We fully intend to build on this momentum and continue to
significantly improve our business in 2015."
The return of shoppers is a relief for retailers that have been
struggling with weak sales and anemic traffic as consumers have
held back spending despite stronger housing prices and an improving
job market. The results suggest that falling unemployment and
improving wages were enough to prompt budget conscious shoppers to
open their wallets.
"If retailers are seeing increases in traffic and pricing, that
is a winning formula," said Oliver Chen, an analyst with Cowen and
Co. "They're getting more people in the door and getting them to
spend more."
Still, Mr. Chen warned that it wasn't time to celebrate citing
in part the heavy reliance on discounts to lure shoppers into
stores. "We're not in the clear," he said.
A stronger economy has also meant that retailers now must
compete more to retain the workers they employ who in many cases
represent a major portion of their own customers.
Wal-Mart came out with a blanket pay increase starting in April.
TJX Cos., the parent of T.J. Maxx, Marshalls and HomeGoods,
followed suit. Others like Kohl's and Target said they would stay
competitive.
Not all retailers are seeing a lift. Sears Holdings Corp. on
Thursday posted a sharp drop in quarterly revenue and is moving
ahead with plans to split off as many as 300 stores. Women's
fashion chain Chico's FAS Inc. unveiled plans to accelerate store
closures.
While Penny's results were good, they weren't good enough for
investors. Shares of the retail chain fell more than 9% in
after-hours trading after the company reported an unexpected loss
for the fourth quarter and failed to show a meaningful improvement
in free cash flow.
Mr. Ullman noted that Penney's operations generated more than
$50 million in cash, representing a $2.8 billion improvement from
the previous year. Traffic to the retailer improved through the
year both in the mall and away from the mall, the company said.
Kohl's reported increases in both credit card and cash
transactions, the first time since the fourth quarter in 2010.
Chief Financial Officer Wes McDonald said the company needs to keep
its cash transactions growing or at least flat "to be as successful
as we would like to be."
Gap Inc.'s lower-priced Old Navy unit increased sales in the
fourth quarter 11%, excluding newly opened and closed stores. For
the year, Old Navy was the only one of Gap's brands to notch
same-store sales gains.
Gap executives cautioned that the Gap brand's turnaround would
take longer than originally expected. It hired Wendi Goldman, a
former Limited Brands Inc. executive, to the newly created role of
executive vice president of product design and development for the
Gap brand.
Profit at Gap rose 3.9% for the quarter ended January to $319
million as total sales rose 2.9% to $4.7 billion.
Retailers are operating on leaner inventory, which is helping to
facilitate more full-priced sales. At the same time, there are
signs that shoppers are trading up to more expensive goods.
"Average retails were up across all of our categories, as guests
were trading up within assortments and we saw strong regular price
sell-throughs," Kathryn Tesija, Target's chief merchandising and
supply chain officer said on a conference call this week.
Lower gas prices are putting more money into consumers' pockets,
but it isn't clear they are spending the money on discretionary
items like clothing or home goods.
Mr. Ullman, the Penney CEO, said he thinks consumers are using
the extra money to pay down their credit card bills or buy
necessities. Likewise, Home Depot Inc. said earlier this week that
it has seen no correlation between lower gas prices and higher
spending at its stores.
Retailers have taken a cautious approach to their guidance for
fiscal 2015 over concerns that the strong dollar could continue to
depress sales and profits. They also warned that it would take time
to get products flowing in a more timely manner from the West Coast
ports now that the labor dispute has been resolved, which could
hurt first-quarter results.
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