US Census Bureau and NRF Report Holiday Sales Increase, but Analysts Aren’t Jolly

Despite bump in sales, analysts focus on profit margins

Holiday sales overall were up, but profit margins may be under pressure.
While numbers appear promising, industry experts Adweek spoke with are not declaring victory yet.
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Key insights:

Both the U.S. Census Bureau and the National Retail Federation reported that holiday sales increased year-over-year, but analysts and consultants remain wary of calling the season a success.

The numbers appear promising: Retail and food service sales for December increased by 5.8% to nearly $530 billion over the same period a year earlier, according to advance estimates provided by the U.S. Census Bureau. For November, the agency’s figures show that retail sales edged higher 0.3% to almost $528 billion. Total sales for October through December were up 4.1% year-over-year.

The National Retail Federation also provided some optimism, stating that holiday sales were up 4.1% to about $730 billion (excluding automobile retailers, restaurants and gas stations), nearly double the 2.1% increase recorded for the 2018 holiday season. Online and other non-store sales, which were included in the total, posted gains of 14.6% to almost $168 billion year-over-year.

Still, industry experts are not declaring victory yet.

“It’s too early to call from a sales perspective,” said Charles O’Shea, vice president and retail analyst at Moody’s. There is too little information on profit margins, he explained, so it is not known how much retailers marked down goods in order to drive sales. If the holiday season was highly promotional, margins will have suffered. “All we’re seeing are revenue numbers, which are pretty high,” O’Shea said. “But what did retailers pay to generate those sales?”

Target reported disappointing top-line numbers, he noted. Comparable sales increased 1.4% during November and December, but prior projections expected double that. Nonetheless, Target is maintaining its fourth quarter guidance, implying it did not sacrifice profits. While not reaching a conclusion on Target’s performance during the holidays, O’Shea did note the company went into the season with $1 billion less in inventory in 2019 versus 2018, which protected margins.

"All we're seeing are revenue numbers, which are pretty high, but what did retailers pay to generate those sales?"
Charles O'Shea, Moody's

On the whole, holiday sales results thus far appear reasonably healthy, according to Steven Dennis, president and founder of SageBerry Consulting. “If we drill down, it’s more of the same bifurcation we’ve been seeing,” he said. “The ones who have performed well continue to do well. Those that struggle continue to do so.”

Dennis takes a bit of issue as well with the idea that the U.S. consumer is in good shape in light of the holiday sales numbers. While wealthy consumers are doing well, benefitting from the rise in the stock market for example, a majority of households are struggling. “Data has shown 80% of American households have less discretionary income than they did a decade ago,” Dennis said. In that regard, off-price and luxury retailers are tending to perform well.

Thus far, comparable results reported by retailers have varied, with department stores such as Kohl’s and JCPenney reporting lower results, while specialty retailers such as Lululemon are showing growth.

I do see a mixed picture. We’re somewhere on the transformation continuum. Everyone has to realize that we’re not on a quarter-to-quarter timeline,” said Andrea Weiss, co-founder of The O Alliance and CEO of Retail Consulting. The outlook needs to be focused on the long-term, she added.

Digging further into the numbers, NRF broke down retail sales year-over-year by category: Grocery and beverage were up 2.9%; furniture and home furnishings increased 2.6%; and health and personal care stores got a 1.6% bump. Building materials and garden supply store sales edged up 1%, while sales for general merchandise and sporting goods each grew by 0.4%. Clothing and accessories store sales declined 1.6%, but did not suffer as much as electronics and appliances, sales for which were down 2%.

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