Retailers report weakest January results in nearly 4 decades as shoppers pull back further
The sales figures made it clear that consumers wrestling with high gas and food prices, a slumping housing market, an escalating credit crisis and a weakening job market retrenched further, buying mostly necessities even when redeeming their holiday gift cards. The disappointments cut across all sectors including discounters like Wal-Mart Stores Inc., teen retailers including Pacific Sunwear of California Inc. and mall-based apparel chain Limited Brands Inc. Even affluent shoppers are pulling back, hurting stores like Nordstrom Inc.
“Clearly, this is a reflection of a very difficult environment for the consumer,” said Ken Perkins, president of RetailMetrics LLC, a research company in Swampscott, Mass. “It looks like consumer spending is stalling.”
Nonetheless, shares of a number of retailers rose as many either backed their earnings forecast or even raised guidance, signaling that they were able to control their inventories. Hot Topic Inc. and Wal-Mart stuck with their earnings forecast, while Pacific Sunwear, Wet Seal and Gap Inc. raised their profit outlooks despite sales drops.
The UBS-International Council of Shopping Centers preliminary sales tally of 43 retailers rose 0.5 percent in January, well below the original 1.5 percent forecast. The results followed an anemic 0.7 pace in December and were below last year's same-store sales average gain of 2.1 percent. Michael P. Niemira, chief economist, said January's performance was the weakest ever, according to records that go back to 1970. It is based on same-store sales, or sales at stores open at least a year.
Thursday's results extended a streak of news that showed more signs of consumer strain. Consumers' spending accounts for two-thirds of economic activity, and their outlays appear to have stalled from an already slowing pace seen over the past year. Wal-Mart noted in its release Thursday that gift card redemptions were below expectations and that customers appear to be holding gift cards longer and “using them more often for food and consumables rather than discretionary purchases.”
While consumers have had to contend with rising gas and food prices and a slumping housing market, there are signs that the job market is becoming a concern as well. On Friday, the Labor Department reported that U.S. employers sliced payrolls by 17,000, the first decline in more than four years. And on Thursday, the department said jobless claims fell last week by 22,000, but the decline was smaller than expected.
And while investors are hoping the Federal Reserve can avert a recession with a series of rate cuts, some economists say the moves may be too little, too late. Analysts also say that while the government's proposed economic stimulus package, which offers rebate checks for more than 100 million Americans, could help reignite spending, the lift would only be temporary.
As Perkins said, if the job market continues to deteriorate, “all bets are off.”
Janet Hoffman, managing partner of the North American retail division of the consulting firm Accenture, agreed, noting she expects “some relief” but nothing “radical.”
“Consumers have exhausted all the avenues to get access to credit,” she added.
Retailers are expected to offer a better picture of the impact of slower sales when they report fourth-quarter earnings over the next few weeks. The retail fiscal year ends in late January.
What might salvage earnings for some retailers is their efforts to control inventories; they're also expected to pare merchandise offerings further in the coming months to respond to slowing demand. Still, Wall Street profit expectations have been lowered in recent weeks – Perkins noted that fourth-quarter earnings growth for the 130 retailers he tracks is expected to be down 5.4 percent, compared to a 1.2 percent growth expected at the beginning of December.
Wal-Mart, the world's largest retailer, reported a 0.5 percent gain in same-store sales. Analysts surveyed by Thomson Financial had expected a 2.0 percent increase. The company said it continues to do well with staples like groceries but that home furnishings remain weak. Wal-Mart noted in its news release that gift card redemptions were below expectations and that customers appear to be holding gift cards longer and “using them more often for food and consumables rather than discretionary purchases.”
Rival Target Corp. reported a 1.1 percent decline in same-store sales in January, worse than the 0.6 percent analysts expected.
Costco Wholesale Corp., however, reported a 7 percent gain in same-store sales, surpassing the 6.6 percent estimate.
Within the department store sector, J.C. Penney Co. had a 1.9 percent decline in same-store sales at its department stores, though the results were better than the 6.3 percent Wall Street expected.
Upscale Nordstrom suffered a 6.6 percent same-store sales decline, much worse than the 0.7 percent decrease expected. Saks Inc., which operates Saks Fifth Avenue, said same-store sales rose 4.1 percent, better than the 2.2 percent estimate. But in a release, the luxury retailer said shoppers continue to shift more of their spending to sale merchandise amid a challenging economic environment.
Macy's Inc. on Wednesday reported a 7.1 percent decline in same-store sales, worse than the 5.9 percent decrease. The company also said it was cutting about 2,300 management jobs as the department store operator consolidates three regional divisions and decentralizes buying to reduce costs and boost sales.
Limited Brands reported an 8 percent drop in same-store sales in January, worse than the 6.9 percent forecast.
Gap Inc. posted a 2 percent decline in same-store sales, better than the 6.5 percent decline projected by analysts.
Among teen retailers, Abercrombie & Fitch Co. had flat same-store sales, matching Wall Street expectations. Pacific Sunwear suffered a 7.4 percent drop in same-store sales; analysts expected a 1.2 percent rise.
Wet Seal's January same-store sales fell 5.7 percent as its Arden B chain continued to slump. The results were worse than the 1.5 percent decline expected by analysts.
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