Retailers reported weak August sales, capping a disappointing back-to-school season and signaling that the crucial holiday period could be the weakest in years.Pinched consumers continued to focus on buying necessities and other items at low prices, giving a boost to discounters Wal-Mart Stores Inc., the world's largest retailer, and BJ's Wholesale Club Inc. But high-end Saks Inc. and Nordstrom Inc. posted worse-than-expected sales declines at stores open at least a year. On Wednesday, middle-market retailers J.C. Penney Co. and Kohl's Corp. also reported lower same-store sales.
Retailers have been planning conservatively for the holiday season. But this week, Penney Chief Executive Myron E. "Mike" Ullman III said at a Goldman Sachs retail conference in New York that he expects holiday shoppers to put off purchases until the last minute, much as back-to-school shoppers did.
Retailers may also face a slowdown in sales to foreign tourists, who last year helped prop up holiday results at some chains with a buying spree fueled by the weak dollar. The sales bump could disappear in coming months if, as expected, the dollar strengthens, European economies slow and airlines cut back on flights to the U.S., analysts said.
"Sales on Fifth Avenue and at some of the heavy tourist destinations are starting to slow," said Brian Tunick, a J.P. Morgan Chase & Co. analyst. That could hurt holiday results at Saks, Tiffany & Co., Macy's Inc. and Abercrombie & Fitch Co. Dana Cohen, an analyst at Bank of America Securities LLC, recently downgraded both Tiffany and Abercrombie shares, partly because of concern about a decline in foreign tourism.
Mike Nuzzo, Abercrombie's vice president of finance, acknowledged the problem, saying at the Goldman Sachs conference that "we're not naively thinking that the [same-store sales] trends that we're seeing driven by international tourism will continue forever." He said, however, that tourist sales at Abercrombie are still strong.
Overall, August sales at stores open at least a year -- a key measure of retail performance -- rose a better-than-expected 2% in August, buoyed by Wal-Mart's results, according to researcher Retail Metrics Inc. Excluding Wal-Mart, same-store sales rose a worse-than-expected 1%. Wal-Mart said its total U.S. same-store sales rose a better-than-expected 3%, excluding fuel.
For the rest of the year, Retail Metrics is forecasting same-store sales gains averaging 1% to 2%, compared with an average monthly gain of 2.6% last year and 3.7% in 2006.
"This is going to be a difficult holiday season unless the job market turns around rather dramatically in the next couple months or gas prices drop to less than $3 a gallon," said Ken Perkins, president of Retail Metrics.
Discounter Target Corp., which hasn't been doing as well as rival Wal-Mart, reported a slightly better-than-expected 2.1% drop in August same-store sales and said same-store sales in September would be relatively flat, rising as much as 1% or falling that much. Costco Wholesale Corp. failed to meet analysts' predictions on Wednesday with its 9% gain in August U.S. same-store sales.
Apparel retailers continued to struggle, with Chico's FAS Inc. posting a 10% decline in same-store sales and Gap Inc. reporting an 8% sales drop. But both chains did better than expected. Meanwhile, lower-priced teen chains Buckle Inc. and Aeropostale Inc. posted strong gains.
By: Jennifer Saranow
Wall Street Journal; September 5, 2008
