Same-Store Sales Are Fading Away

In the beginning of this year, we said investors should expect same-store sales growth rates to deteriorate as the year progressed, which would seem counter intuitive. However, even while the economy finds some traction, sales are increasingly matching against more normalized comparables and finding a higher bar to surpass.

"Same-store sales" is a term coined to describe retailers' sales from stores that have been opened for a year or more. This tracks organic sales, versus the sales contribution from the addition of new retail locations. It is a useful tool to measure the true health of a franchise, as it captures its popularity and success in garnering store traffic and sales in a competitive marketplace.

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Same-Store Sales Are Fading Away

We say "more normalized comparables" above because early year comps were marked against perhaps some of the weakest per capita consumer activity in generations. As you'll recall, March of 2009 marked the bottom point for stocks, and inspired serious panic in the hearts of investors and consumers alike. Only a few brave souls were able to hold their noses, cover their eyes, and buy stocks that spring, and they benefited greatly from that courage. This spring's store sales were compared against that historically soft span, which made for a low bar to leap over this year. Thus, when yearly comparisons of same-store sales ran up to a rate of 3% to 4% earlier this year, we warned investors to temper their enthusiasm and wait for later days to get a true reading of consumer spending.

The International Council of Shopping Centers (ICSC) reported this week that same-store sales for the week ended October 16 fell 0.7%. That might seem bad enough, but weekly sales can track up or down against the prior week on noisy factors like large storms or broad cold spells. Instead, what is troubling retailers and investors now is the year-over-year comparisons they have seen of late.

In the latest period, year-over-year sales increased 1.7%, the slowest rate of growth seen in five months. The latest measure compares against a 3.6% rate reported as recent as this September 25th. Redbook, another consumer group, also measures year-over-year growth, and while it marked a faster pace of 2.7% in the latest period, its data trend line matches the downward slope of ICSC and reinforces concerns. We have noted a streak of slower sales over the last few weeks in particular.

Some may want to point toward auto sales and last year's Cash for Clunkers program as a reason for variation. However, ICSC excludes vehicle sales from its data. In any event, the Clunkers program concluded last August, and so would not play a role in October comparisons. September might be a different story, since the program likely pulled sales forward.

The current period marks a lull in shopping activity, falling in between the back-to-school stimulant and Black Friday, the start of the holiday season. Still, we are marking data against last year, and so seasonal patterns carry the same impact to each year's particular period, except when small calendar variation exists. That said, we may see higher Black Friday sales than last year, given the depth and length of this recession.

With 17% of the American workforce under-employed and near 10% unemployed, about half of which have been that way for more than 27 weeks, you can expect a greater number of Americans will be bargain hunting this year, if they shop at all. Perhaps there will be a shopping moratorium? Here is a nice idea: Let's give kisses, hugs and good deeds this year, to mark the merry season with the spirit of love that birthed it, versus the spirit of commercialism that has since overtaken it.

If holiday shopping is hotter on Black Friday and the Monday that follows, known as Cyber Monday, investors might be wise to again wait and see before banking on retail gains. Cyber Monday marks the first day back to work after Thanksgiving, and it has produced a promotional blitz for web retailers over the last decade. Apparently, many of you are still digesting your turkey that Monday and feeling a little lazy; thus, there is an extraordinary amount of online shopping and general perusing that occurs that day. There are also a ton of online sales to take advantage of, and so Cyber Monday has become a staple of American culture. More shopping now occurs on Cyber Monday than on Black Friday, or this year will mark the takeover. We hope you will also visit us on that lazy day.

In any event, consumers and investors will likely stick with discounters and retailers with creative deals and marketing schemes this year. Keep your eye out for those, and let us know; maybe we will find a stock to splurge on together. I think we will finally get a real feel for how bad things are this year. In the past, folks shouldered the season with savings and spirit, but Americans are hurting even worse this year and are not sure when they will be on solid footing again. Thus, I suspect this will mark the low point for consumer spending for this cycle on a per capita basis, at least until Iran, nuclear terrorism and general chaos rule the day. Hold up your eggnog and let's toast to: May that day never come.



This article should prove interesting to investors in NYSE: PIR, NYSE: ETH, Nasdaq: HOFT, NYSE: HD, NYSE: LOW, Nasdaq: AAPL, NYSE: BBY, NYSE: LTD, NYSE: CHS, NYSE: ANN, NYSE: GPS, NYSE: M, NYSE: JCP, NYSE: JWN, NYSE: TJX, NYSE: KSS, Nasdaq: COST, NYSE: TGT, NYSE: WMT, Nasdaq: WTSLA, Nasdaq: HOTT, NYSE: AEO, NYSE: ARO, NYSE: ANF, NYSE: SAK, NYSE: TIF, NYSE: TLB, NYSE: LL, Nasdaq: BLDR, NYSE: FO, NYSE: LEG, NYSE: TPX, NYSE: AYI, NYSE: LZB, Nasdaq: SCSS, NYSE: ZZ, NYSE: FBN, NYSE: NTZ, Nasdaq: SHLD, NYSE: DDS, Nasdaq: BONT, Nasdaq: CPWM, Nasdaq: BKRS, Nasdaq: BEBE, NYSE: BKE, Nasdaq: CACH, Nasdaq: CMRG, Nasdaq: CATO, NYSE: CBK, Nasdaq: CTRN, NYSE: PSS, Nasdaq: DEST, Nasdaq: DBRN, NYSE: DSW, Nasdaq: FINL, NYSE: FL, Nasdaq: GYMB, NYSE: GES, NYSE: JCG, NYSE: JNY, Nasdaq: JOSB, NYSE: NWY, NYSE: JWN, NYSE: MW, Nasdaq: SYMS, Nasdaq: PLCE.

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