Australia just raised lending rates. Who's next?
Oct retail sales down. How can that be? Economy is booming, is it not?
KSS will get hit hard this season
F and TIF 46.87 bid (nice short)as well
Message 19465419
Dow Jones Business News
October Retail Sales Seen Weaker Than In Recent Past
Tuesday November 4, 12:43 pm ET
By James Covert, Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Summer shopping sprees that sizzled through September fizzled in October, as bouts of warm weather distracted consumers from fall fashions.
October had been a blow-out month last year, as a stretch of persistently warm weather finally turned cold, releasing pent-up demand for sweaters, jackets and other outerwear. But this year, a back-to-school season fueled by tax cuts, and capped by cold weather in September that jump-started fall apparel sales, gave way to a lukewarm October.
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Aside from spurring clearance sales that may limit upside to retailers' third- quarter earnings, the recent sluggishness has fueled a lively debate about the prospects for the holiday season. Pessimists see evidence of lost momentum and a lackluster Christmas, while a chorus of optimists perceive a mere pause.
"The fundamentals in the economy are improving, but spending's not higher every month," says Michael P. Niemira, an economist at Bank of Tokyo-Mitsubishi Ltd. in New York. "The pause might be just what you need at this time of the year - if the consumer holds back a little bit in October, maybe there's a chance they'll spend a little more during the holidays."
Whatever the cause and its implications for the future, the slowdown will make for some ugly numbers when most major retail chains report monthly sales on Thursday. Niemira expects that an index of 79 retailers tracked by his bank will post a 2.5% to 3% gain in same-store sales, or sales at stores open at least a year - a key measure of retail performance.
That result would fall well short of the 5.9% increase the index posted in September. But like many other retail watchers, Niemira figures that shoppers are simply taking a breather. He's sticking to his initial forecast that holiday comparable sales will increase 4.5% - a forecast that he calls conservative.
Discounters Strong, Even In Apparel
As usual, big discounters are expected to post the strongest results. Still nervous about their jobs despite other positive signs in the economy, consumers continue to hunt for bargains and stick to the essentials. Wal-Mart Stores Inc. (NYSE:WMT - News; WMT) is expected to be a primary beneficiary of the trend.
Still, Wal-Mart said last week that upside to its forecast of a 3% to 5% same- store sales gain could be limited by weather and calendar-related issues. Bill Dreher, an analyst at Deutsche Bank Securities in New York, anticipates that Wal-Mart's October same-store sales rose 4%.
Most analysts see continued difficulty for apparel retailers, and Dreher sees a trend that's benefiting apparel sellers on the low end. He notes that VF Corp. (VFC) said last month that recent sales of its Lee, Wrangler and Riders jeans have beaten expectations, and that its sales at Wal-Mart and Target Corp. (NYSE:TGT - News) have been brisk.
On the other hand, Jones Apparel Group , which supplies middle-brow department stores including J.C. Penney Co. (NYSE:JCP - News) , Kohl's Corp. (NYSE:KSS - News) and Sears, Roebuck & Co. (NYSE:S - News) , said last month it remains "extremely cautious" heading into the holidays.
Dreher expects Sears and Penney to report October same-store sales roughly in line with their forecasts for flat results. However, he anticipates that Kohl's will miss its plan for flat October same-store sales compared with the 18.3% surge the company posted a year earlier. Dogged by warm weather, competition, and new merchandise and promotional strategies that are confusing its customers, same-store sales at Kohl's will fall 6%, Dreher says.
Late-Month Improvements At Gap
Once again, the shopping mall will be a mixed bag. At Gap Inc. , "the excitement in the stores was lacking at the start of the month," Merrill Lynch & Co. analyst Mark Friedman said in a Monday research note. But around the third week of the month, "it all changed."
The first holiday merchandise at Gap stores shows appealing colors. Banana Republic's latest goods look strong, especially in accessories. And Old Navy (NYSE:GPS - News) is "still a bit basic but saleable and colorful - priced right and therefore still a winner," Friedman says. He anticipates Gap's October same-store sales will rise 1% to 3% companywide.
Teen retailers that cater to more distinct niches continue their winning streak. Pacific Sunwear of California Inc. (NasdaqNM:PSUN - News) faces a daunting comparison with a year ago, when it posted a 19% same-store sales increase. Nonetheless, the chain's surf-and-skatewear should manage a 5% to 7% gain in October, Friedman says.
However, upscale Abercrombie & Fitch Co. (NYSE:ANF - News) and its lower-priced rival, American Eagle Outfitters Inc. (NasdaqNM:AEOS - News) , have had some difficulty of late selling their middle-of-the-road teen fashions. They're likely to post same-store sales declines of 5% and 8%, respectively, says Todd Slater, an analyst at Lazard Freres & Co. in New York.
"Despite an easy comparison, and efforts to improve its merchandise assortment, AEOS had a disappointing back-to-school," Slater wrote in a Tuesday research note. "And we saw no tangible signs of improvement through October."
Neither Deutsche Bank's Dreher nor Lazard's Slater own shares in any of the above-mentioned companies, but investors should assume that their firms are pursuing investment-banking business with all of the companies.
One or more members of Friedman's research team owns shares of Gap, and investors should assume that Merrill is pursuing investment-banking business with all of the above-mentioned companies.
-By James Covert, Dow Jones Newswires; 201-938-5360; james.covert@dowjones.com
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