Retailers Say U.S. Sales May Slow Through Holidays

Posted: November 22, 2007 in ritel


Retailers Say U.S. Sales May Slow Through Holidays

By Lauren Coleman-Lochner

U.S. retailers are poised for a sales slowdown that may last through the holidays and into 2008. Target Corp., the second-biggest U.S. discounter, reported today its first profit decline in two years. Home improvement chain Lowe’s Cos. yesterday cut its earnings forecast for the second time in two months, and a survey of consumers showed the biggest portion of Americans in eight years plan to spend less money on holiday items. Rising gasoline prices and the worst housing recession in 16 years have caused shoppers to make fewer trips to stores. Retailers, which count on November and December for 20 percent of their revenue, are making holiday price cuts earlier and more aggressively than last year. “All these factors continue to pressure consumers, and it looks like that pressure isn’t easing,” said Steven Baumgarten, an analyst at PNC Wealth Management in Philadelphia, with $77 billion in assets including Wal-Mart Stores Inc. and Target shares. Target, which trails Wal-Mart in sales, said today that third-quarter profit fell to $483 million, or 56 cents a share, trailing analysts estimates, after demand for its profitable clothing and home goods slowed. Borders, the second-largest U.S. discount chain, may report a loss of 62 cents, the seventh straight quarter without a profit, after selling its U.K. and Ireland stores, analysts estimated. The Ann Arbor, Michigan-based retailer reports results later today.   Worst Since 2005 Clothing chain Limited Brands Inc., based in Columbus , Ohio , will probably show that it broke even in its third quarter, according to 19 analysts surveyed. That would be the company’s worst earnings performance in two years. Merchants including Kohl’s Corp. said they’re planning conservatively next year after third-quarter sales trailed predictions. Lowe’s, based in Mooresville , North Carolina , lowered its earnings forecast for the rest of the year ending Feb. 1 as it reported a 10 percent drop in third-quarter profit amid the worst U.S. housing recession since 1991. Last week J.C. Penney Co., the third-largest U.S. department-store company, and Seattle-based Starbucks Inc., the world’s largest coffee-shop chain, also reduced their profit outlooks, as did Atlanta ‘s FedEx Corp., the second-largest U.S. package-shipping company. “A weakening housing market continues to take a toll,” Brian Nagel, an analyst with UBS Securities LLC, wrote in a note yesterday.     Cost of Heat So are consumer debt levels, rising gasoline prices and higher home-heating costs, according to a survey released yesterday. The research, by the Consumer Federation of America and the Credit Union National Association, found that 35 percent of Americans polled said they intend to lower their holiday spending this year, the most in eight years and up from 32 percent last year. “By a wide margin, the strongest negative influence is the high cost of gasoline and home heating,” the credit union group’s chief economist, Bill Hampel, said at a news conference. Besides pressured consumers, the two largest booksellers are grappling with competition from Bentonville, Arkansas-based Wal-Mart and online retailer New York-based Barnes & Noble and Borders have slashed prices by as much as 40 percent to drive sales.  Barnes & Noble Barnes & Noble, the world’s largest bookstore chain, today reported a third-quarter profit on higher Internet sales. The New York-based chain posted profit of $4.38 million, or 7 cents a share. Five analysts surveyed by Bloomberg forecast a loss of 9 cents a share. Kohl’s and J.C. Penney, two retailers catering to middle- income shoppers, cut their fourth-quarter forecasts last week. “We’re being very conservative in our sales planning for 2008,” Wes McDonald, chief financial officer at Menomonee Falls, Wisconsin-based Kohl’s, said on the company’s third- quarter earnings call last week. Shares of retailers have been plunging since the holiday sales season started Nov. 1. The Standard & Poor’s 500 Retailing Index is down 12 percent this month, including a 27 percent drop by Plano, Texas-based J.C. Penney.  Holiday Discounts Wal-Mart, the world’s biggest retailer, started its holiday discounts in October, and unveiled sale prices for the day after the U.S. Thanksgiving holiday. The chain offered a 42-inch liquid-crystal display television set for $798 and a Tonka dump truck for $10 in a circular on its Web site. Sales in November and December represent 20 percent of retailers’ annual revenue, according to the National Retail Federation, a Washington-based trade group. The NRF has predicted a 4 percent sales gain to $475.5 billion for the two months combined, the smallest increase since a 1.3 percent rise in 2002. Lowered expectations for the current quarter bode poorly for 2008, said Lauri Brunner, an analyst at Thrivent Investment Management in Minneapolis , with $70.6 billion in assets. “If that happens in your best quarter in the year, it doesn’t mean it’s going to stop in the first quarter of next year,” she said. The International Council of Shopping Centers, a New York- based trade group, projects November and December comparable sales at about 70 chains it tracks to climb 2.5 percent, the least in three years. “People are going to be tighter than normal with their spending,” said Baumgarten of PNC Wealth Management. “All indications are, it’s going to be a tough period.”  Source: Eric Chandra
Merchandising and Retailer Service
The Nielsen C om pany


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