Friday, April 11, 2003

Economic doldrums affect retail


Add in war, late spring

By Randy Tucker
The Cincinnati Enquirer

As expected, most U.S. retailers Thursday reported disappointing March numbers as the impact of war, bad weather and a shift in the Easter holiday hurt sales for the month.

Department store retailers, including Cincinnati-based Federated Department Stores, were again hit especially hard by flat consumer spending, which has plagued the retail sector for several months.

SLUGGISH MONTH
March same-store sales reported by the five largest retailers (sales compare the current year's sales with those of the previous year at stores open at least a year):
• Wal-Mart Stores, up 0.7 percent.
• Target, down 2.3 percent.
• Kmart, filed for Chapter 11 in January 2002 and reports its same-store sales data when it reports its operating data at the end of each month.
• J.C. Penney, down 5.5 percent (J.C. Penney stores only).
• Sears, Roebuck and Co., down 3.1 percent (domestic stores only).
Federated's same-store sales - or sales at stores open at least a year - fell 6.5 percent in March, meeting revised expectations of a decline of 6 percent to 7 percent. But the company had previously expected only a 3 percent to 4 percent decline. Total sales fell 5.9 percent to $1.23 billion from $1.31 billion in March last year.

Terry Lundgren, Federated's president and chief executive officer, said the company's March sales were down, in part, because of televised coverage of the war with Iraq, which kept consumers glued to their TV sets, and unseasonably cool spring weather in much of the country, which curtailed demand for spring clothes.

Like other retailers, the parent of Lazarus, Macy's and Bloomingdale's also suffered from a shift in the calendar that moved the Easter shopping season into April this year, sucking sales out of March.

But none of those factors has hurt retail sales as much as the continued economic malaise, marked by high unemployment, high gasoline prices and low consumer confidence, said Kurt Barnard, chief economist and president of Barnard's Retail Consulting Group, which forecasts industry trends and consumer spending patterns.

"Consumers are in a very cautious mood, not because of the war with Iraq, but because they are worried that the pink slip may be on the way," Barnard said.

Federated said it also expects April sales to be lower than previously forecast. However, the sales decline won't prevent the big retailer from meeting its first-quarter earnings guidance of 14-19 cents a share, the company said.

Federated has been able to maintain profits despite declining sales by slimming inventory and cutting costs.

But that won't last forever, experts say, and Wall Street is looking for signs that Federated and its peers can generate revenue growth.

"The real issue is that the underlying consumer trend remains weak," said Dana Cohen, an analyst at Bank of America Securities LLC in New York. "Fundamental to our thesis is the fact that retailers need top-line (revenue) as inventory and expense benefits start to run out."

Boosting sales will be a challenge.

The National Retail Federation - the nation's largest retail trade group - has revised its 2003 forecast for growth in consumer spending to 3.8 percent, down sharply from 5.6 percent predicted in January.

A 3.8 percent increase in retail sales would be the smallest since the retail federation started tracking sales a decade ago.

Sales should improve after the war is resolved, but the economy remains weak, and competition in the industry remains high.

Even discount chains, which have fared better in the down economy than their full-priced counterparts, are beginning to feel the pinch.

Wal-Mart said same-store sales were up only 0.7 percent in March, below the 1.5 percent same-store gain analysts had expected.

Target Corp. said it probably won't meet its profit goal for the first quarter, because of sluggish sales. The company's same-store sales were down 2.3 percent, below analysts' expectations of a 1.9 percent decline.

In the department store sector, May Department Stores Co. posted an 11.4 percent decline, worse than the 8.8 percent drop analysts had anticipated.

E-mail rtucker@enquirer.com



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