Barron’s:”Department Stores Are Performing Better Than Specialty...

Barron’s:
”Department Stores Are Performing Better Than Specialty Retailers. It’s Time to Dress Up.By Teresa RivasFollowMay 27, 2022 1:28 pm ETSpecialty retailers like American Eagle Outfitters missed the mark on quarterly earnings as some consumers trim their purchases for casual clothes.**by Jones/BloombergNot long ago, anchor stores at malls were seen as just that—dead weights dragging down traffic. Yet this earnings season has been just the opposite, with department stores climbing and specialty retailers tumbling. The reason: Consumers, especially wealthier ones, are choosing dresses over jeans.First the good news. Nordstrom (JWN) posted yet another dramatic beat-and-raise quarter earlier this week—both its top line and full-year outlook were well above recently raised expectations. That was followed shortly by much of the same from Macy’s (M), and both stocks jumped double-digits in response to the reports.Compare that with other mall staples out this week. Abercrombie & Fitch (ANF) had its worst day ever, a reaction to the fact that its quarter contained a surprise loss and a cut to its full-year guidance. Urban Outfitters(URBN) and American Eagle ( AEO ) missed the mark as well, earning them analyst downgrades.Likewise Gap (GPS) had already warned in late April that sales would disappoint, but pretty much everything else in its quarter did as well, and its new lowered forecast is below consensus estimates by a country mile. Analysts are throwing in the towel.There are a lot of company-specific factors at play here, but one major reason for the divergence in results is the return of special occasions and some in-person office work. While those categories suffered during the pandemic, consumers are flocking to them once again.“Going out categories continue to be a bright spot in multi-category retailers, with demand for suits, dresses, and shoes outperforming,” notes Cowen & Co. analyst Oliver Chen.Nordstrom JWN +7.84% said that men’s apparel was a standout as people began to travel and socialize again. Urban Outfitters ‘ upscale and event-focused Anthropologie division was the standout in that company’s quarter, with an 18% jump in same-store sales. Likewise, Gap’s dressier Banana Republic brand was the only one of its four divisions to notch positive comparable sales in the quarter.By contrast, it’s hard to argue that American Eagle, Gap’s Athleta, and Abercrombie sell much in the way of fancy dress or special occasion wear. That’s more the domain of other specialty retailers like Ralph Lauren (RL ), which also posted strong results this week.While Americans are still willing to spend on clothes to a degree, they appear to be focusing their inflation-pressured budget on these options, after they stocked up on lounge pants and t-shirts during the pandemic. That helps explain why apparel sales were also lackluster at big box retailers Walmart (WMT) and Target (TGT), which again offer more basics and little in the way of formal wear.Back in April, Rent the Runway (RENT), which specializes in designer dresses, gowns, and accessories, delivered a stronger-than-expected fourth quarter.Still, it’s not all weddings and cocktail parties. The other big factor is that American Eagle and Gap’s big Old Navy brand are more skewed toward lower-income shoppers, who have been weakest this earnings season.Higher costs for essentials like food and fuel have outpaced wage gains for this group, who are acutely feeling the lack of stimulus that bolstered their spending in the year-ago period. Shoppers up the income ladder have yet to feel as much of a pinch, and are more willing to keep spending, to the benefit of companies like Nordstrom.As Deutsche Bank ’s **riella Carbone notes, Macy’smanagement “highlighted that they have not seen any pull back from the company’s consumer (especially on the high end) and noted May to date has ‘started out quite strong.’ Meanwhile, American Eagle and Gap faced challenges in the quarter leading to negative guidance revisions. Both companies suffered from inventory imbalances along with having exposure to the lower income consumer.”That was true of Nordstrom as well, whose “customer has yet to turn away from price increases, following similar trends across the luxury industry,” notes Cowen’s Chen. “Further, management saw elevated traffic and transaction levels during the first quarter indicating continued strength in the U.S. luxury consumer.”In addition, company called out designer goods as one of its best performing categories in the quarter. Luxury goods consignment marketplace RealReal (REAL) had its own better-than-expected quarter earlier this month.Along with offering more polished apparel, it’s worth nothing that outperforming Banana Republic and Anthropologie also carry higher price tags than Gap and Urban Outfitters’ other divisions.The strength of high-income consumers has been apparent across the retail spectrum, from Ralph Lauren to Williams-Sonoma (WSM) and Petco Health & Wellness (WOOF), particularly for more domestic-focused companies that can sidestep demand-dampening pandemic restrictions in China.In the end, everyone may be eager to enjoy a more normal summer this year, going places and seeing people. Yet wealthier Americans are more likely to be able to dress for the occasion.”