The soft holiday season was reflected in apparel and department store retailers’ Q4 results. While some (TJX and Kohl’s) managed to drive positive results, others (Macy’s, Nordstrom) came in a bit below expectations but still have positive momentum heading into 2019. The biggest headlines were not good ones: JCPenney continues to struggle to find its footing, and L Brands and Gap Inc. deal with chronic underperformance at Victoria’s Secret and Gap that outweighs growth from Bath & Body Works and Old Navy. Here’s our quick take on what you need to know about these retailers’ results:

Top Performers

Kohl’s

  • Results Recap: Unsurprisingly, Kohl’s performed the best among its department store peers and better than its own expectations, with a 1% comp in Q4 and 1.7% comp for the year.
  • Big News: Planet Fitness is Kohl’s newest partner (following Aldi last year) to lease space from 10 “standard to small” stores. Kohl’s is growing its partnership with Amazon through greater wholesale distribution of Amazon devices, but still not revealing anything on the returns front.
  • POV: The Planet Fitness move aligns perfectly with Kohl’s growing active assortment and goals of driving more store traffic, but a 10-store partnership is unlikely to move the topline. Look for a more significant partnership to come next year. Meanwhile, Kohl’s will need to evaluate the value to shoppers of processing Amazon’s returns with the associated costs and potential lack of topline benefits.

TJX

  • Results Recap: Q4 comps rose 6%, above expectations and driven for the 18th-consecutive quarter by traffic. Annual comps were also up 6%. Each segment (Marmaxx, HomeGoods and International banners) saw positive comps, with a slight drag of -50bp to margin across all segments.
  • Big News: Marshalls will be launching a transactional online presence in Q3.
  • POV: The Marshalls announcement marks the first significant investment in digital since the launch of TJMaxx.com in 2013 and could signify that more is to come. While the retailer has not “needed” eCommerce and omnichannel capabilities to achieve its market dominance, it may be recognizing that it will need it in future to maintain its share, as well as remain competitive as more specialists and department stores invest in online convenience.

Good Performers

Macy’s

  • Results Recap: Q4 sales were softer than expected coming in at -2.5%, while comps were up around 0.4%. For the year, sales were basically flat with a promising 2% increase in comps. BOPS purchases now account for 7% of all online purchases, a share that doubled during Holiday 2018.
  • Big News: Restructuring in management has led to 100 VP-level lay-offs to support streamlined decision-making and realize cost efficiencies.
  • POV: Macy’s is in a better place than most despite soft Q4 results. The restructuring comes as a bit of a surprise from a company that seems to have its organizational ducks in a row, but will likely lead to faster strategic implementation in 2019, which will be key to making advancements on its many initiatives.

Nordstrom

  • Results Recap: Leadership was not happy with its Q4 performance, with full-line comps down 1.6%, and off-price comps up 4%, balancing to a 0.1% total comp. For the year, comps were up 1.7%
  • Big News: A soft holiday saw slow sales across most categories in full-line stores. This was a surprising result for a retailer that has been more immune than others to macroeconomic swings.
  • POV: Without a previous history of product misses, it is unlikely that this slow holiday is a true downward trend for Nordstrom. The retailer is organized and ready to act fast to course correct and has a thriving off-price business to fuel new shopper growth while offloading “clearance” from its full-line locations.

Poor Performers

Gap

  • Results Recap: Net sales dropped significantly driven by a 5% decrease in Gap Global sales for the quarter, outweighing continued success in Old Navy, and flat sales at Banana Republic.
  • Big News: 230 Gap specialty stores will close over the next two years as the brand undergoes a significant overhaul with hopes to both right its footprint and reconnect with shoppers.
  • Bigger News: Old Navy will be spun off as a separate public company. The value-focused banner has excelled in recent years, enhancing its speed-to-market and investing in price to drive value, opening hundreds more stores.
    • Subsequent news: Gap is set to acquire Janie and Jack from bankrupt parent company Gymboree.
    • POV: The spin-off is great news for Old Navy, which will no longer have its success consistently offset by sluggish performance by Gap. But for the Gap, this seems like potentially a last significant effort to help the brand find its place in a market where it has lost relevance. See our full take on the news for more.

L Brands

  • Results Recap: Q4 comps slumped 3% while annual comps grew 3%. Strong sales and growth from Bath & Body Works outweighs continued struggles at Victoria’s Secret (-7% Q4 store comps).
  • Big News: During the quarter, L Brands offloaded its La Senza brand and permanently closed the Henri Bendel brand. The company subsequently announced it will accelerate the closure of 27 Victoria’s Secret stores.
  • POV: Victoria’s Secret continues to languish in a rapidly changing lingerie market. Cutting investments in non-core businesses will relieve funds to pay debts, but the bigger challenge will be addressing the changes needed at VS and Pink– a challenge assigned to new VS Lingerie president John Mehas and new Pink president Amy Hauk.

JCPenney

  • Results Recap: Q4 sales decreased 9.5%, while comps fell 4%. Margins decreased a further 220 bp due to clearance as JCPenney continues to work through a glut of slow inventory. For the year, sales dropped 7.1%, comps -3.1%.
  • Big News: As part of its new agenda to cut losses and get the business back on track, its two-year foray into appliances is coming to an end. Ahead of earning, the company announced it would refocus attention on its core categories of apparel and soft home.
  • POV: While cutting appliances is a good decision, most of JCPenney’s initiatives including inventory reduction, store closures, enhancing store labor productivity and—alarmingly—shrink, will put it squarely in recovery mode in 2019.

Stay tuned to KantarRetailIQ.com for our complete coverage of apparel and department store results and outlook in the coming weeks.

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