TrendWatch: Top and Bottom Retail Performers in Q3

Now that most publicly traded companies have reported on their third-quarter financial performance, a clearer picture of the competitive landscape is emerging. As retailers enter the all-important holiday selling season, some retailers are soaring (Nordstrom, Whole Foods) while others are sputtering (American Apparel, Office Depot).

One trend comes through loud and clear: many of the retailers doing well are operating strong e-commerce channels. Several companies in the Winners column are reporting double-digit sales increases for their online businesses, and are noting online's contribution to the company's overall performance.

Two other trends point to a positive outlook for the industry as a whole. One is that some of the “Winners” are expressing enough confidence to expand their brick-and-mortar footprint, opening retail locations during this period and planning more new stores throughout the fiscal year.

The other positive trend is that among most of the underperforming retailers, the sales slippage for Q3 2010 compared to Q3 2009 is relatively small—generally under 5%. However, the 2009 reporting period being used as a comparison was while the economy was just beginning its sluggish recovery, so the news is only good, not great.

This RIS News TrendWatch analysis compares retailers' net sales (or net revenues if net sales are not reported) for the third quarter of 2010, comparing these results to the same period in 2009. We also consider comparable-store sales in assessing retailers' performance.

Top 5 Losers

American Apparel: This vertically integrated manufacturer, distributor and retailer operating 278 stores continues to struggle. Net third-quarter sales were $134.5 million, 10.5% lower than the same period in 2009, and comp store sales declined 16%. The company posted a net loss of $9.5 million during the quarter, compared to net income of $4.2 million in Q3 of 2009. Higher prices for apparel raw materials, particularly cotton, are likely to spell continuing tough times for this company.

CVS Caremark: Net revenues for this 7,100-store drugstore retailer were $23.9 billion for Q3 2010, down 3.1% from $24.6 billion in the prior year's period. Poor performance by the company's Pharmacy Services segment—its revenues dropped 8.5%, to $11.9 billion—was a major contributor to the company's woes. CVS' Retail Pharmacy segment revenues actually increased 4.1%, with total same-store sales climbing 2.5%.

Liz Claiborne: Net sales for the third quarter were $658 million, a decrease of $103 million, or 13.6%, from the same period in 2009. Even excluding the impact of an $83 million decrease in net sales, the result of several Liz Claiborne brands transitioning to a licensing business model with JCPenney and QVC, net sales decreased 2.7%. The company sees opportunities internationally, with plans to open approximately 35 additional retail and outlet doors globally this year.

Office Depot: The 1,150-store retailer had $2.9 billion in sales during Q3 2010, a 4% decrease compared to the previous year. In the company's North American retail division, sales decreased 1% to $1.3 billion, and comp store sales were flat. While the company's transaction count increased during this period, average order value decreased, reflecting increased competitive pressure during its crucial back-to-school season.

Winn-Dixie Stores: This 485-store supermarket retailer had net sales of $1.54 billion in the third quarter, a 2.3% decline from 2009's $1.58 billion. A comp store sales decrease of 2.8% was a significant contributor to the sales drop. Many supermarket retailers have been struggling this year, creating fierce price competition in this segment. In addition, in the Southeastern region where Winn-Dixie operates, it's likely there's been a continuing economic impact from the BP oil spill this past spring and summer.

Top 5 Winners

: This footwear wholesaler and retailer had $215.6 million in revenues in Q3, a 30% increase over the same period in 2009. The company saw sales increases in all three of its key channels: wholesale sales increased 16%, to $123.9 million; retail sales increased 35%, to $72.5 million; and Internet sales increased 19%, to $19.2 million. Crocs CEO John McCarvel noted in a recent conference call that retail has become a larger percentage of the company's total business, with a varied retail footprint that includes carts, kiosks and outlet stores.

Nordstrom: Third-quarter net sales were $2.09 billion, up 11.7% compared to the same period in 2009, and same store sales increased 5.8%. The luxury department store retailer is in a store expansion mode: it opened one full-line store and nine Nordstrom Rack stores during Q3. Nordstrom Rack has been performing well, with net sales climbing by $65 million, 17.9% above the same period in 2009. For the company overall, the positive sales contributed to its fifth straight quarter of earnings improvement.

Polo Ralph Lauren: Total net sales for this combined wholesaler and retailer increased 11.9% in Q3, reaching $1.48 billion. Retail sales made a strong contribution during this period, rising 17% to $659 million, compared to $563 million for the same period in 2009. Consolidated comp store sales increased 8% and online sales climbed 21% during this period, and the company launched an e-commerce site in the U.K. in October.

Urban Outfitters: Total company net sales rose 13% in Q3, reaching $574 million. Direct-to-consumer net sales, which include the specialty retailer’s online and catalog operations, made a strong contribution, climbing 31% compared to the same period last year to $105.6 million. The company, which operates under banners including Anthropologie, Free People, Leifsdottir, Terrain and Urban Outfitters, is expanding its brick-and-mortar footprint: it opened a total of 29 new stores in Q3, and plans to open approximately 45 new stores during the fiscal year.

Whole Foods Market: This 300-store natural and organic foods market seems to be bucking the hard-times trend affecting many other grocers. Its third-quarter sales increased 15% to $2.1 billion, driven by comp store sales growth of 8.7% compared to the same period in 2009. This retailer understands its customers, and its business model reflects that understanding. Co-founder and co-CEO John Mackey attributed much of the company's success "to our initiatives in areas such as healthy eating, animal welfare and sustainable seafood. These initiatives are aligned with our core customer base and reinforce our position as the authentic retailer of natural and organic foods…making us the preferred choice for customers aspiring to a healthier lifestyle."

For related content see: TrendWatch: Top 5 Retail Winners, Losers in Third Quarter
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