Sept. retail sales rose a slim 1.7%

Several chains cut earnings forecasts

October 12, 2007|By New York Times News Service

Retailers are in for a tough fall, and consumers are in for deep discounts.

Big chains reported a bleak September yesterday, with sales at stores open at least a year rising 1.7 percent, the weakest performance in five years, according to the International Council of Shopping Centers, a trade group.

As a result, more than a dozen retailers, including the luxury chain Nordstrom Inc. and the discounter Target Corp., cut their earnings forecast for the final three months of the year.

Those troubles will be a boon to shoppers. To clear all that unsold fall merchandise in time for the crucial holiday shopping season, retailers are expected to offer steep markdowns in coming weeks.

"Managers and district managers don't know where to put all this clothing," said John D. Morris, a retail analyst at Wachovia Securities. By his estimate, markdowns are up 5 percent this fall compared with the corresponding period a year ago "and rising fast," Morris said.

Retailers blamed the downturn on tight credit, a poor housing market, unseasonably warm weather and a strong showing in September 2006, which made this year's performance lackluster by comparison.

The weather is cooling off, but the economic clouds are unlikely to lift before the holiday season, which is expected to produce the slowest growth rate since 2002.

The extent of the troubles in September surprised industry analysts because even high-end stores, largely invulnerable to swings in the housing and stock markets for the past five years, struggled to meet forecasts last month.

Nordstrom and Saks Inc., for example, missed sales estimates. Blake Nordstrom, president of Nordstrom, warned that the chain had overbought clothing, which would hurt profits for the rest of the year. "We did not achieve our plan," he said.

Bill Dreher, a retail analyst at Deutsche Bank Securities, said "the high-end consumer is finally showing weakness." Investors have been looking at the high-end stores as a safe place to hide their investments, he said, but "it is not. It may be a dangerous place to hide."

In contrast, Wal-Mart Stores Inc., which caters to lower-wage shoppers, raised its profit forecast for the rest of the year on the expectation that cost-cutting would bolster sales. The discount chain said sales in September rose 1.4 percent, which was below its expectations. It is vigorously cutting toy prices to drum up business for the holiday season.

Sales at stores that have been open at least a year are considered an important measure in retailing because they discount the impact of new and closed outlets.

Target, Wal-Mart's more fashionable rival, posted a disappointing 1.2 percent sales increase and cut its quarterly earnings estimate.

The mid-price department store industry suffered across the board in September. Sales fell 4.6 percent at J.C. Penney Co. and 2.7 percent at Macy's Inc.

Macy's chief executive, Terry J. Lundgren, said the company faced tough comparisons with September 2006, when it renamed 400 former May department stores as Macy's and introduced an intense marketing campaign to win over shoppers.

Wal-Mart, in a statement, warned that "customers remain concerned about their finances, especially the cost of living."

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