11-7-13 4:53 PM EST | Email Article

(Updates with Gap results, final numbers.)

 
   By Anna Prior 
 

Retailers reported better-than-feared sales in October as steep discounts and promotions helped drive traffic, a trend that's likely to continue through the critical holiday season.

Expectations for October were muted due to worries about the partial U.S. government shutdown at the beginning of the month and the downbeat sales trends reported during the back-to-school season.

"People were watching a dissolving quarter in September and were nervous about whether it would continue into October," said Rebecca Duval, a retail and apparel analyst at BlueFin Research Partners. "The promotional levels were very high and that kind of worked in terms of driving traffic."

While Thursday's data from the few retailers still reporting monthly results is "somewhat encouraging," Ken Perkins of Retail Metrics cautioned against reading too much into the numbers, noting October is typically a transitional month and the lackluster back-to-school season has a higher correlation with how holiday sales usually fare.

"Steep discounting is likely to be the order of the day from now until the New Year and could drive better-than-expected sales," he said.

Consumers' penchant for spending on big-ticket items continued in October with auto makers earlier this month reporting stronger sales--suggesting the industry wasn't too dented by the federal government shutdown and debt-ceiling debate in Congress--but expectations were low for apparel retailers in particular as same-store sales missed estimates in the previous three months.

In addition, teen retailer Abercrombie & Fitch Co. (ANF) scared investors earlier this week as it reported a 14% plunge in fiscal third-quarter same-store sales and set expectations for a low double-digit drop for the fourth quarter.

But some retailers, like Gap Inc. (GPS), Buckle Inc. (BKE) and L Brands Inc. (LTD), bucked that trend by posting growth on Thursday, with only youth-focused action sports apparel retailer Zumiez Inc. (ZUMZ) reporting sales that missed analysts' expectations.

Even J.C. Penney Co. (JCP), which long ago stopped reporting monthly metrics, sought to calm its investor base in reporting same-store sales edged up 0.9% last month, its first monthly increase since December 2011.

The nine retailers tracked by Thomson Reuters posted 3.7% growth in October same-store sales, or sales at stores open at least a year, versus the 2% consensus estimate and the 5.7% increase posted a year earlier.

Many retailers, including the major department stores, have stopped reporting monthly results, making it more difficult to gauge the performance of the entire industry.

Gap reported 4% growth in October same-store sales, topping expectations for a 0.1% increase. The company also reported better-than-expected third-quarter sales and offered an earnings view for the quarter that topped analysts' estimates.

Among Gap's brands, its namesake stores reported a 5% increase versus the 0.3% growth estimate, while Banana Republic's same-store sales grew 1%, compared with expectations for a 3% decrease. Old Navy posted 2% growth, while expectations were for a 0.8% increase.

L Brands--formerly Limited Brands--reported same-store sales jumped 8%, well above analysts' estimate of 2.2% growth, boosted by a 10% rise at Victoria's Secret. L Brands also noted it expects quarterly earnings to come in at the high end of its previous guidance.

Of L Brands' other units, Bath & Body Works sales grew 4%, topping the expected 1.8% increase, while La Senza sales fell 2%, compared with expectations for 2.5% growth.

Costco Wholesale Corp. (COST) posted a 5% increase, excluding gasoline, topping expectations for 4.5% growth. Among the stronger performing categories were garden, toys, office, small appliances, jewelry and apparel, though the company noted the consumer electronics category was muted.

Regional discounter Fred's Inc.'s (FRED) same-store sales grew 0.8%, slightly above expectations for 0.7% growth. But Chief Executive Bruce Efird said sales were at the lower end of the company's guidance, pointing to poor weather around Halloween and consumers tightening spending during the recent budget crisis.

Mr. Efird also noted Fred's expects a "very tough retail environment" for the upcoming holiday season, so Fred's has maintained inventories at or below last year's levels.

Among teen retailers, Buckle reported a 2.6% increase in same-store sales, beating expectations for a 1.7% decline.

Zumiez, meanwhile, reported a 1.2% increase, slightly below expectations for 1.7% growth. The retailer posted growth in the accessories, footwear, hard goods, and juniors categories, while the company's men's and boy's segments recorded lower sales.

 

Write to Anna Prior at anna.prior@wsj.com

 

Subscribe to WSJ: http://online.wsj.com?mod=djnwires


(END) Dow Jones Newswires

November 07, 2013 16:53 ET (21:53 GMT)

Copyright (c) 2013 Dow Jones & Company, Inc.
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