New York, NY, Oct. 7--Retailers are expected to post healthy sales gains for the month of September, aided by consumer tax cuts, cooler weather and easy comparisons with the previous year.
Slated to be reported Thursday by most major U.S. retail chains, September sales are forecasted to continue the streak of increases retailers have posted since July, when shoppers were buoyed by a round of federal tax cuts. A massive blackout in August registered as barely a blip with most retailers, and likewise, September results are expected to show little impact from Hurricane Isabel.
US Bancorp Piper Jaffray expects September sales at stores open at least a year, or same-store sales--a key measure of a retailer's performance--to increase 4.1%, with discounters outperforming apparel chains as usual. That's roughly in line with August's results, and well ahead of the 2.2% increase seen a year ago, when shopping was thought to be hampered by jitters over the Sept. 11 anniversary.
But if September is a key indicator for gauging the holiday season, observers nevertheless remain divided as to whether the shopping sprees will sustain themselves. While many big chains expect to meet or beat their plans for September, signs of weakness surfaced throughout the month. Wal-Mart Stores said sales slowed during the third and fourth weeks. And last week, JC Penney Co. said comparable sales at its department stores will fall on the low end of its expectations for the month.
Penney, of Plano, Texas, noted weakness in the crucial category of women's apparel. Wal-Mart at its annual analysts meeting last week reported a similar problem and said steeper-than-expected markdowns will put a lid on its third quarter earnings. Alan J. Lacy, chairman and chief executive of Sears, Roebuck & Co., told analysts last month that fall apparel sales will be "relatively tough."
True, the above-mentioned companies aren't necessarily on the cutting edge of fashion. But their weakness nevertheless is fueling worries about the economy. Dwindling proceeds from tax-rebate checks, rising fuel prices, and the increasingly high profile of the shaky job market could spell trouble for Christmastime, some analysts say. Citing such factors, Wal-Mart CEO H. Lee Scott told analysts last week that "the holiday season will be improved over last year, but not significantly."
A select crop of retailers will post strong holiday sales, but those companies will have to earn them with compelling merchandise, says Dorothy Lakner, an analyst at CIBC World Markets in New York.
"I don't think it's the case of the rising tide that's going to lift all boats," Lakner said. "This is the third year in a row we've started out saying there was going to be a second-half recovery, and the second half is turning out to be more muted than expected."
Other analysts, however, point to the positive signs. Many economists are hopeful about a recovery in industrial production. Retailers' inventories have generally been controlled, which bodes well for holiday profits. And sales during September's third and fourth weeks were hurt mainly by a warm-up in temperatures, says Jeffrey Klinefelter, an analyst at US Bancorp Piper Jaffray in Minneapolis. The weather cooled off during the final week of the month, and retail sales accelerated accordingly, he noted.
"The fact that the month finished strongly will really throw into question whether it's a valid thesis (that the effect of the tax cuts is waning)," Klinefelter said. "There is no way for anyone to figure precisely what effect those tax cuts have had."
In any case, the effect has been less than transforming. Two-thirds of Wal-Mart's sales continue to be driven by customer traffic, rather than the size of transactions. That's a sign that consumers "are adhering to a more frugal mindset," says Bill Dreher, an analyst at Deutsche Bank Securities in New York.
Following September's worse-than-expected drop in consumer confidence, Dreher is pessimistic about the momentum of the tax cuts. Nonetheless, Wal-Mart is the kind of animal that will continue to thrive in such an environment, Dreher says. He expects the Bentonville, AR, discounter to post a 4.5% increase in its same store sales--at the high end of its 3% to 5% forecast. Wal-Mart's same store sales increased 3.3% a year earlier.
But if shoppers like big-box retailers, they aren't hitting the malls with the same frequency or conviction. Department stores, typically plagued by complicated layouts, poor service and lackluster merchandise, continue to lose customers to discounters and specialty-apparel chains. Federated Department Stores, owner of Macy's and Bloomingdale's, saw a relatively strong start in September, and may eke out a slight increase in its same-store sales. But May Co., which operates Lord & Taylor, is expected to post a decline in the 2% to 4% range.
