Sales at U.S. Retailers Languish on Recession Concern (Update4)

By Heather Burke

Feb. 7 (Bloomberg) -- Sales at U.S. retailers languished in January as discounts failed to lure consumers concerned that a recession is coming. Macy's Inc. and Nordstrom Inc. reported declines, while the gain at Wal-Mart Stores Inc. was less than analysts estimated.

Sales at stores open at least a year rose 0.5 percent at Wal-Mart as winter storms discouraged shoppers in the Midwest and fewer customers redeemed gift cards. The monthly increase among retailers was also 0.5 percent, the worst January since 1970, the International Council of Shopping Centers said today.

Department stores and mall-based shops slashed prices on clothing and bedding to attract customers following the slowest holiday season since 2002. Consumers refrained from spending as median home values probably fell for the first time since the Great Depression and employers cut back on hiring.

``You're seeing the continuing unfolding of the consumer spending slowdown,'' said Ken Perkins, president of Retail Metrics LLC, a Swampscott, Massachusetts-based research firm. ``Clearance sales were widespread, there were certainly enough incentives to draw the consumer in under normal economic circumstances, but consumers are hunkering down.''

Department stores have been hit hard by a decline in customer visits to malls and a lack of new products that excite consumers, Perkins said. Nordstrom's sales sank 6.6 percent. Analysts surveyed by Retail Metrics expected a 0.4 percent decline.

Macy's, the second-biggest U.S. department-store chain, said yesterday that January same-store sales dropped 7.1 percent, cut its fourth-quarter profit forecast and said it will eliminate 2,300 jobs. Kohl's, the fourth-largest U.S. department-store chain, posted a 8.3 percent decline, worse than the estimate for a 7.9 percent drop.

J.C. Penney Profit

J.C. Penney Co. said monthly results fell 1.9 percent, better than its forecast, and said fourth-quarter profit would be at the high end of its projection of $1.65 to $1.80 a share.

The retailers' shares rose, with the Standard & Poor's 500 Retailing Index gaining 2.5 percent after losing 8.3 percent during the previous three sessions.

J.C. Penney climbed $4.13, or 9.5 percent, to $47.85 at 10:27 a.m. in composite trading at the New York Stock Exchange. Wal-Mart, the world's largest retailer, was unchanged at $48.83 while Kohl's rose 4.7 percent to $44.92.

``Sales weren't great, but they generally weren't worse than expected,'' said Howard Tubin, a retail analyst at RBC Capital Markets in New York. ``Given the lack of additional bad news, the sector is rallying a bit today.''

Low Expectations

Among retailers tracked by Retail Metrics, 57 percent of them beat ``very low expectations,'' Perkins said today in a statement.

Same-store sales are seen as a key gauge of a retailer's performance because they exclude locations that have recently opened or closed.

Sales dropped 8 percent at Limited Brands Inc., owner of the Victoria's Secret chain. The sales decrease exceeded the average analyst estimate for a decline of 7.1 percent. American Eagle Outfitters Inc. said yesterday that same-store sales fell 7 percent.

Wal-Mart had predicted a January same-store sales gain of 2 percent, the same as the average Retail Metrics estimate.

Target Corp., the second-largest U.S. discount chain, reported a 1.1 percent decline. It had said Jan. 21 it expected January sales to be ``near the low end'' of its forecast range of a 1 percent decrease to a 1 percent gain.

Other retailers performed better than analysts expected.

Children's Place

Children's Place Retail Stores Inc. reported a 6 percent same-store sales increase, ahead of the 3.6 percent estimated gain. AnnTaylor Stores Corp., a women's clothing retailer, said sales were unchanged from a year earlier, better than the estimated 3.7 percent decline. Chief Executive Officer Kay Krill said in the statement it was ``promotionally aggressive'' to clear inventory.

Gap Inc., the biggest U.S. clothing retailer, said same- store sales decreased 2 percent, better than the 6.1 percent drop predicted by analysts. Gap said it was able to clear out holiday merchandise on higher margins than planned and boosted its full-year profit forecast.

January consumer confidence fell near a two-year low, the Conference Board reported last week, as Americans struggled with higher energy costs and the persistent housing slump. Last month the U.S. unexpectedly lost jobs for the first time in more than four years.

Median Price

The median price of an existing single-family home dropped 1.8 percent in 2007, the first decline since records began four decades ago and probably the first drop since the Great Depression in the 1930s, the National Association of Realtors said last month.

Morgan Stanley, Merrill Lynch & Co., Goldman Sachs Group Inc. and Citigroup Inc. are forecasting the first recession since 2001 this year. The Federal Reserve on Jan. 30 lowered its benchmark interest rate for the second time in nine days. Congress is considering fiscal stimulus plans that would provide tax rebates to try to spur consumer spending.

Wal-Mart and Costco Wholesale Corp. may benefit because they sell necessities such as groceries, and some consumers may be trading down, Timothy Ghriskey, who helps manage more than $2 billion at Solaris Asset Management LLC in Bedford Hills, New York, said yesterday. Last month Wal-Mart cut prices up to 30 percent on food, televisions, and home and exercise products.

Costco said today in a statement that same-store sales rose 7 percent. Analysts expected 6.3 percent.

The National Retail Federation last month predicted 2008 total sales would rise 3.5 percent from last year, which may be the slowest gain in six years.

To contact the reporter on this story: Heather Burke in New York at hburke2@bloomberg.net .