Holiday tidings not so good for retailers

  • Article by: David Phelps
  • Star Tribune
  • October 11, 2007 - 9:29 PM

New fall fashions failed to stimulate shoppers in September, as warm weather, high gasoline prices and credit concerns brought disappointing results to the nation's retailers.

Target Corp. said that year-end earnings would come in at the low end of previous estimates.

J.C. Penney Co., Nordstrom Inc., Gap Inc. and Limited Brands Inc. all lowered their earnings outlooks. Wal-Mart Stores Inc. performed below analysts' expectations, but the company said that third-quarter profit will benefit from an aggressive price-cutting initiative with Christmas toys.

Analysts said that the slumping September retail environment does not trend well for retailers going into the critical holiday season. Consumers, though, might get an early Christmas, as stores may be forced to place goods on sale earlier to get shoppers in the doors.

"The question is, 'When is Christmas going to come? How bad is it going to be?'" said Lauri Brunner, an analyst for Thrivent Investment Management. "The indications are we will have a weak holiday."

Minneapolis-based Target said that sales for the five weeks ended Oct. 6 rose 6.2 percent, while comparable sales for stores open at least a year rose 1.2 percent.

That was worse than a diminished forecast that the company gave late last month, when it predicted same-store sales of 1.5 to 2.5 percent, down from an earlier forecast of a 4 to 6 percent gain. Target shares slipped $1.15 Thursday, or 1.8 percent, to close at $64.62.

Target's 2007 earnings "will be below" $3.60 per share, according to a company statement. That is lower than Wall Street's consensus estimate of $3.62 per share.

Target's biggest rival, Wal-Mart Stores Inc., surprised investors with a better-than-expected sales report. The company raised its outlook for the third quarter, and its share price climbed almost 3 percent, to $46.90.

But the Arkansas-based retailer was one of the few bright spots Thursday.

Even the launch of a much-anticipated line of clothes from noted designed Vera Wang couldn't salvage the month at Kohl's Corp. The Menomonee Falls, Wis.-based chain saw comparable store sales decline 3.2 percent, while total sales increased 5.9 percent. Chairman and CEO Larry Montgomery said that weak sales in an unseasonably warm September were affected by "weather-sensitive" items, such as "long bottoms, fleece and sweaters."

Similarly, Wilsons the Leather Experts Inc. said its September same-store sales fell 13 percent, as "abnormally warm weather" hurt its outerwear categories.

But retail analysts see more than warmer weather clouding the retail front. Unrelentingly high gas prices, rising food costs and trouble in the lending markets all are making consumers more disciplined in their spending patterns.

"These things cloud people's feelings," said Dave Brennan, co-director of the Institute for Retailing Excellence at the University of St. Thomas. "Once you get into gloom and doom, it colors things. If there is uncertainty in the economy, consumers are not going to be as bullish."

Thrivent's Brunner said that the moms who control the family purse strings are spending less in the department and discount stores, as fuel and food take up big chunks of the household income.

David Phelps • 612-673-7269

David Phelps •

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