Stifel Comments on November/Black Friday Sales (GPS) (URBN) (M)

Stifel analyst Richard Jaffe offering the following commentary on November retail sales:

Black Friday has turned into Black November as retailers began promoting earlier in the month in attempt to pull forward holiday sales. Despite the increased duration, most promotions are similar to last year’s efforts and we believe companies have margin engineered these promos, limiting margin pressure. Looking forward, we remain cautious regarding the Holiday season as external headwinds and a lack of apparel newness will likely hold back apparel sales.

In this environment we favor those retailers that offer the consumer broad and compelling assortments and prices that reflect excellent value. Our favorites include Buy-rated KSS, M, LB and TJX. Longer term, we are favorable on GPS and URBN.

Key Takeaways:

• Holiday Shopping Started Early - Black Friday marked the official start to the holiday season, however unofficially, the holiday season started a week earlier this year with widespread promotions offering discounts up to 50% off at many retailers. Retailers took an aggressive and proactive approach to driving traffic and gaining market share. However, many retailers have margin engineered their promotions, limiting 4Q gross margin pressure.
• Strong Thanksgiving and Black Friday Sales - It appears that customers turned out in force yesterday and today to take advantage of what they perceive to be excellent values. We believe that they are shopping in a very discriminating manner, focusing on key opportunities for value. Additionally, many consumers were self-purchasing.
• Post Black Friday Lull Expected - With sales peaks and troughs growing more pronounced, we expect there will be a lull in shopping following Cyber Monday (the Monday post-Thanksgiving weekend) as consumers take a break from spending and await the motivating forces of increased promotions as Christmas grows closer. In order to maximize gross margin, we believe retailers will focus their promotions on key traffic driving days and pull back on promotions during slow periods.
• Winners and Losers - Earlier openings combined with relatively flat promotions y/y proved compelling, by our estimation, for selected apparel retailers. Standouts today include Old Navy, Kohl’s and Macy’s. Traffic was also heavy throughout the mall, especially at Abercrombie, Hollister, American Eagle and Victoria's Secret. Aeropostale’s promotions did drive traffic but the store was the most promotional out of the teen retailers with 60% off the entire store. Outside the mall, Kohl's drove traffic with a combination of attractive promotions (Kohl’s Cash) that were well advertised (especially in home and electronics) and early store openings. TJX and ROST, with their policy of everyday low prices, saw only light traffic. These businesses are well positioned and appear well inventoried. We believe that, as in years past, their time will come. Traffic was weak at kid’s clothing stores, including Children’s Place, as Thanksgiving and Black Friday shoppers appeared to be more focused on big-ticket merchandise and self-purchasing. *Prices are intraday 11/28/2014.

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