Apparel sales shrink, but profits grow

Market conditions in apparel remain challenging and demand is soft, but Target is likely enjoying solid profitability in this important segment of its business assuming its performance is at least as good as that of some key competitors.

JCPenney, Kohl’s and Macy’s each reported third-quarter results last week, and while they didn’t set the world on fire in terms of sales, the reported sales and profits were higher than they originally planned. At JCPenney, which reported third-quarter results on Friday, sales decreased 3.2% to roughly $4.2 billion compared to last year, while comparable-store sales decreased 4.6%. Kohl’s managed to increase sales 6.5% to $4.1 billion and it even produced a 2.4% same-store sales increase. Macy’s said its third-quarter sales declined 3.9% to nearly $5.3 billion and while same-store sales slid 3.6%.

JCPenney chairman and CEO Mike Ulman summed up the strategy a lot of retailers, including Target, are relying on to produce profits amid a difficult demand climate when he said, “Our ability to deliver earnings above original expectations resulted from better than expected improvement in gross margin as we have maintained appropriate inventory levels and reduced both clearance selling and unprofitable discounting.”

JCPenney reported an 11-cent-a-share profit compared with initial guidance which called for anywhere between a per share loss of five cents to a five-cent profit. Despite the better than expected results, no one is getting too cocky about their ability to drive apparel sales during the holidays. JCPenney expects comps to be down in a range of 4% to 6%. Kohl’s is looking at comps to be in a range between a 1% decline and a 2% increase, while Macy’s is forecasting a comp decline of 1% to 2%.