Retailers report weak January results

Shoppers wrestling with economy
February 7, 2008 6:08:50 AM PST
The nation's retailers delivered more evidence of a stumbling economy Thursday, as merchants including Wal-Mart Stores Inc. reported weak January results, extending a malaise that has deepened since the holiday shopping season.The disappointing sales figures made it clear that consumers wrestling with high gas and food prices, a slumping housing market, an escalating credit crisis and a weakening job market retrenched further, buying mostly necessities, even when redeeming their gift cards. The disappointments cut across all sectors including teen retailers like Pacific Sunwear of California Inc., mall-based apparel chain Limited Brands Inc.

Among the few winners was Costco Wholesale Corp., whose results beat Wall Street expectations.

"Clearly, this is a reflection of a very difficult envrionment for the consumer," said Ken Perkins, president of RetailMetrics LLC, a research company in Swampscott, Mass. "It looks like consumer spending is stalling."

According to a preliminary tally by Thomson Financial, seven retailers missed expectations, while four beat estimates. The tally is based on same-store sales or sales at stores open at least a year and are considered a key barometer of a retailer's health.

Thursday's results extended a streak of news that showed more signs of consumer strain. Consumers' spending accounts for two-thirds of economic activity, and their outlays appear to have stalled from an already slowing pace seen over the past year. Wal-Mart noted in its release Thursday that gift card redemptions were below expectations and that customers appear to be holding gift cards longer and "using them more often for food and consumables rather than discretionary purchases."

While consumers have had to contend with rising gas and food prices and a slumping housing market, there are signs that the job market is becoming a concern as well. On Friday, the Labor Department reported that U.S. employers sliced payrolls by 17,000, the first decline in more than four years. And on Thursday, the department said jobless claims fell last week by 22,000, but the decline was smaller than expected.

And while investors are hoping that the Federal Reserve may avert a recession with a series of rate cuts, some economists say the moves may be too little, too late. Analysts also say that while the government's proposed economic stimulus package, which offers rebate checks for more than 100 million Americans, could help reignite spending, the lift would only be temporary.

As Perkins said, if the job market continues to deteriorate, "all bets are off."

Janet Hoffman, managing partner of the North American retail division of the consulting firm Accenture, agreed, noting she expects "some relief" but nothing "radical."

"Consumers have exhausted all the avenues to get access to credit," she added.

Wal-Mart, the world's largest retailer, reported a 0.5 percent gain in same-store sales. Analysts surveyed by Thomson Financial had expected a 2.0 percent increase. The company said it continues to do well with staples like groceries but that home furnishings remain weak. The discounter, however, stuck to its fourth-quarter earnings forecast.

Costco reported a 7 percent gain in same-store sales, surpassing the 6.6 percent estimate.

Limited Brands reported an 8 percent drop in same-store sales in January, worse than the 6.9 percent forecast.

Pacific Sunwear suffered a 7.4 percent drop in same-store sales; analysts expected a 1.2 percent rise.

Wet Seal Inc.'s January same-store sales fell 5.7 percent as its Arden B chain continued to slump. The results were worse than the 1.5 percent decline expected by analysts.


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