Hardlines Stronger in March

The report, a collaboration of analysts Ralph Jean, Shawn Tesoro and Jeff Schollaert, notes that a mix of factors drove sales for the hardlines sector in March. "We believe that same-store sales results for the month of March could be at the higher end of our forecasted range," the report says, "due to the favorable Easter shift (Easter occurred in March this year vs. April last year), the continued mix shift to traffic-generating consumable merchandise in the discount sector, and generally favorable sales trends in the arts & crafts sector, partially offset by rising gasoline prices impacting all retailers to some degree."

According to the report, Dollar General stands to benefit most from the addition of highly consumable merchandise into its mix—a "rollout of coolers to its store base"—with Family Dollar also benefiting to a lesser extent. In that way, the two are mirroring Wal-Mart (which isn't tracked as a hardlines retailer by Wachovia), which anticipates stronger comps in March because of the sale of lower-margin consumable merchandise. It's possible, however, that these higher comps for Dollar General and Family Dollar may eventually come at the expense of these retailers' gross margins, the Wachovia analysts note.

In any case, the analysts predict that Dollar General and Family Dollar will be the winners in the discount hardlines category, both posting 3% to 5% increases for the month compared with March 2004. Estimated comp increases for the first fiscal quarters of 2005 for Dollar General and Family Dollar are 4% and 3% respectively. Big Lots is expected to see a 2% increase in both its March comps and the same increase in its first fiscal quarter. 99 Cents doesn't report month comps, but it's expected to see a decrease of 2% in its first fiscal quarter. "The company has suffered from recent management changes (CFO resigned in mid-March) and has delayed the Q4 earnings report indefinitely," Wachovia says of 99 Cents, but adds that it plans to release first-quarter sale-store sales results this Friday.

In arts and crafts, March comps aren't expected to be up quite as much for the three retailers in the category, but there will be some improvement. "We continue to see favorable sales trends in the arts and crafts sector," the report notes. "However, we view the fabric business as in a state of secular decline. We believe that sales trends at A.C. Moore were very strong during the first half of Q1, despite very difficult comparisons (+9.4% last year), then adverse weather in late February/early March significantly impacted the company's sales."

For March, Wachovia anticipates Jo-Ann Stores to post comps from flat to a 2% increase, while Hancock Fabrics will see comps in a range from flat to a 2% decrease; A.C. Moore doesn't report month comps. For their first fiscal quarters, Jo-Ann is expected to see a 1% comp-store sales increase, Hancock will be flat, and A.C. Moore will post a 1% comp-store sales decrease.