Sales reports signal a blue Christmas for many retailers

Associated Press

NEW YORK — Prospects for a strong holiday season grew dimmer Thursday after the nation’s largest retailers reported generally disappointing sales results for October.

While many specialty apparel retailers enjoyed healthy sales, many other stores languished amid slowing consumer spending.

"Don’t count on the consumer," said retail industry analyst Jeffrey Feiner of Lehman Brothers. "They’re not buying. I think the holiday season will be less than stellar."

Although some stores tried to put a positive spin on October’s lackluster results, blaming them on such temporary factors as unseasonably warm weather in the Northeast and a lack of must-have fashions, many industry executives believe retailing’s problems run much deeper.

The slowing economy, rising fuel prices and the stock market’s volatility have helped make consumers much more cautious about spending on discretionary items, or merchandise they don’t actually need.

The weak sales environment prompted a number of companies, including Wal-Mart Stores Inc., the world’s largest retailer and usually one of the industry’s best performers, and jeweler Zales Corp. to lower their sales expectations for the holiday season.

And J.C. Penney Co. Inc., which did not meet its sales target for the month, said it expects its third-quarter earnings loss to at least double from recent forecasts.

"There is clearly something fundamental going on here," said Michael Niemira, vice president of the Bank of Tokyo-Mitsubishi Ltd.

Niemira and others noted that a drop in consumer optimism has raised concerns that the holiday season will be difficult. On Tuesday, the Conference Board said its consumer confidence index fell sharply during October, indicating that Americans are becoming more conservative about spending.

The Bank of Tokyo-Mitsubishi retail sales index, which tracks sales at about 80 store chains, rose 3.2 percent last month from October 1999, when the index rose 5.7 percent. From January through October, the index rose 4.6 percent, compared with 7 percent in the same period last year.

October isn’t considered a make-or-break month for sales; it’s considered a transitional period when stores clear out fall merchandise and move into holiday velvets. However, even the heavy clearance sales didn’t spark spending, analysts said.

What shocked many analysts in particular were the disappointing sales results from discounters, which are seen as the bellwethers in consumer spending. Wal-Mart blamed its lower sales projections for the fourth quarter on declining traffic in its stores. It now expects its sales growth to be in the range of 3 percent to 5 percent, below analysts’ expectations of 4 percent to 6 percent.

However, Wal-Mart reported a 4.9 percent increase in October sales at stores open at least a year, meeting Wall Street targets.

Sales at stores open at least a year, known as same-store sales, are the most widely used measure of retailers’ strength.

Meanwhile, discounters Bradlees Inc., Ames Department Stores Inc., Kmart Corp., ShopKo Stores Inc. and Costco Inc. turned in results below analysts’ expectations.

"This is affecting the bedrock of spending," said John Pitt, managing director of Redbook Services. "They represent mainstream America. They cover a wide range of merchandise, from durables to food and clothing."

Penney blamed its 2.6 percent same-store sales decline in October on heavy markdowns. The retailer’s catalog sales, including jcpenney.com, dropped 12 percent.

"Department stores continue to lose market share to specialty stores," said Kurt Barnard, publisher of Barnard’s Retail Trend Report, based in Upper Montclair, N.J.

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