May Numbers Take Clothing Retailers to the Cleaners

An earnings warnings from teen-oriented retailer Pacific Sunwear (PSUN) headlined a dismal Thursday for the apparel sector.

Eight of nine apparel retailers tracked by Thomson Financial/First Call reported May sales figures that fell short of consensus sales estimates, some by significant margins. The weak showing offered the latest evidence that the consumer economy remains weak. Retail stocks remained mostly unchanged, with the S&P Retail Index rising fractionally.

"It was even worse than our extremely low expectations," says Todd Slater, an analyst at Lazard Freres who follows the apparel sector. "The consumer rolled over in May."

Overcast

Pacific Sunwear, an Anaheim, Calif.-based maker of surfer-inspired duds, said second-quarter earnings would range from 13 cents to 17 cents a share, significantly less than the Wall Street consensus of 26 cents a share quoted by Thomson Financial/First Call. Shares fell $1.38, or 6.2%, to $20.89.

Pacific Sun's same-store sales, which gauge activity in shops open at least a year and are a key metric for investors and analysts who follow retailers, fell 9.8% from last year. "May sales were significantly below plan," Greg Weaver, the company's chairman and chief executive, said in a statement. "Based on May's results, I would expect sales to remain difficult for at least the next two months."

Setting Pacific Sunwear over a year

Most clothing retailers fared similarly poorly. The Gap (GPS), which has struggled to meet sales and earnings targets, said same-store sales fell 10% in May, far more than the consensus estimate of a 3.3% decline. As a result, the Gap said second-quarter sales would likely be below expectations, though the company didn't cut earnings estimates.

"Given May performance," Chief Financial Officer Heidi Kunz said in a statement, "we expect the second-quarter comp to be worse than the negative mid-single digit guidance previously given." San Francisco-based Gap's shares were off lately $1.09, or 3.5%, at $30.30.

Also disappointing investors Thursday was Abercrombie & Fitch (ANF), which reported a 2% decline in May same-store sales, well off Wall Street's expectations for a 2.3% gain. Shares fell $3, or 7%, to $40.10.

Pullback

Other retailers also had a tough time in May, with 13 of 21 companies followed by Thomson Financial/First Call falling short of sales expectations. This was in sharp contrast to April, which saw most companies significantly exceed analysts' sales estimates.

To that end, Instinet's Redbook Same-Store Sales Index, a broad measure of sales that tracks around 60 retailers, posted just a 0.4% gain for May, its weakest year-over-year rise for 2001.

Thursday's news suggests that the prospects for recovery in consumer spending by the second half of the year, which analysts have long predicted, are uncertain at best.

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