Retailers report weak September sales

NEW YORK - American shoppers went into hiding in September, sticking to buying the bare-bone essentials and leading many retailers to report dismal sales for the month as skittish consumers grappled with the global financial meltdown.
In this Aug. 12, 2008 file photo, consumers enter and exit JC Penney's department store in Pleasanton, Calif. J.C. Penney Co. said Wednesday, Oct. 8, 2008, that its September same-store sales sagged 12.4 percent, due to worsening economic and financial conditions

The weak reports — an alarming gauge of consumer behavior since the meltdown began midway through last month — are fueling more worries about the holiday season and the overall economy, since consumer spending accounts for two-thirds of all economic activity.

As retailers reported their sales figures Wednesday, even discounters weren't immune to shoppers' mounting worries about their financial security.

Wal-Mart Stores Inc., the world's largest retailer, and wholesale club operator Costco Wholesale Corp. both reported solid sales but results were a bit shy of Wall Street estimates. Target Corp. reported a bigger-than-expected sales drop and cut its earnings outlook as it grapples with a surge of customers defaulting on the company's store credit card payments.

Luxury stores such as Saks Inc., which operates Saks Fifth Avenue, suffered big sales drops, while many mall-based apparel stores and department stores including J.C. Penney Co. and American Eagle Outfitters Inc. found themselves mired in a deep sales slump.

"This is not a significant comfort going into the holiday season," said Ken Perkins, president of research company RetailMetrics LLC. "Everybody across the board is feeling it. Even discounters are going to have a tough go. Consumers are going to tighten their purse strings even more."

A preliminary tally by Thomson Reuters said 10 retailers missed estimates, while three beat projections. One met expectations. The tally is based on same-store sales, or sales at stores opened at least a year, which are considered a key indicator of a retailer's health.

Perkins and other analysts are worried that spending could deteriorate even more as the problems on Wall Street further filter through the economy, with layoffs expected to rise in the coming months and the credit markets remaining frozen. That means that consumers are having a hard time getting loans and credit lines. That's adding to more stress for shoppers, who were already contending with high gas and food prices and a slumping home market.

And even with a massive government bailout package, the stock market has kept dropping — underscoring fears among investors that the rescue plan will not avert a deep recession. In the last five trading days, the Dow Jones Industrials have lost 1,400 points, wreaking havoc on Americans' retirement funds.

On Thursday, The Federal Reserve ordered an emergency interest rate cut of a half percentage point to cope with the worst financial crisis since the 1929 stock market crash.

Wal-Mart offered a tepid sales outlook as it reported a 2.4 percent gain in same-store sales for September. Analysts had expected a 2.5 percent gain. The company blamed the modest size of the increase on the impact from hurricanes Ike, Gustav and Hanna, which forced the company to temporarily close 341 stores, as well as on overall economic challenges. It noted that the impact from the hurricanes depressed same-store sales by 0.4 percentage point.

Wal-Mart said it expects same-store sales at its U.S. stores to be up from 1 to 2 percent for October.

The company said same-store sales in September were strong in both grocery and health and wellness and that customers continue to look for basics. It added that children's clothing sales were positive but sales of discretionary items were soft.

Wal-Mart, like many U.S. retailers that operate overseas, is now also contending with an international economic slowdown. The retailer said it had solid sales figures in many of its international markets, despite tough economic conditions. But it did cite a 3.8 percent dip in same-store sales at Wal-Mart Mexico amid a slowdown in the Mexican economy.

Despite the overall economic uncertainty, Wal-Mart said it's sticking with its current earnings estimate for the third quarter ending Oct. 31.

Rival Target Corp., which has struggled because of its heavy emphasis on nonessentials like fashions and home furnishings, reported a 3 percent drop in same-store sales. That's worse than the 1.3 percent decline that Wall Street analysts had expected. It reduced its third-quarter estimates as the weak economy has led to mounting defaults on credit card payments and meant higher net write-offs rates in its credit card segments.

The company's subdued earnings outlook assumes essentially flat year-over-year same-store sales in the fourth quarter and a continuation of recent write-off rate trends through the remainder of this year.

Costco announced a 7 percent gain in same-store sales for September, a bit below the 7.5 percent estimate that Wall Street expected. Excluding gasoline price inflation, same-store sales would have been up 6 percent.

But mall-based apparel and department stores continued to see their fortunes unravel as customers focused on basics.

Penney reported a 12.4 percent drop in same-store sales, even worse than the 9.9 percent decline that analysts had expected. The company cut its earnings and sales outlook for the third quarter.

Saks reported a 10.9 percent drop in same-store sales, worse than the 6.8 percent decline expected.

Among teen retailers, Pacific Sunwear of California Inc. had a 5 percent decline in same-store sales, worse than the 7.3 percent drop Wall Street expected. American Eagle Outfitters Inc. had a 6 percent drop in same-store sales, worse than the 5 percent decline projected.