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Last updated on April 18, 2014 at 1:21 EDT

Retail sales up but discounts hit profits

October 6, 2005

By Emily Kaiser

CHICAGO (Reuters) – September sales were resilient in the
face of Hurricanes Katrina and Rita and high gas prices,
although sales came at a cost as retailers slashed prices to
maintain demand, putting pressure on profits, U.S. chain stores
reported on Thursday.

Chains that sell gasoline, including Wal-Mart Stores Inc.
and Costco Wholesale Corp., posted better-than-expected sales
growth. But several apparel retailers and department stores
missed forecasts, and some trimmed profit forecasts as heavy
markdowns eroded margins.

Research firm Retail Metrics said September sales rose 4.1
percent at stores open at least a year — a key retail measure
known as same-store sales. That was better than the 3.6 percent
analysts had predicted, but Costco’s 11 percent same-store
sales growth alone accounted for the surprisingly big gain.

“You look at all the (profit) warnings we saw on the third
quarter and it looks like it was a really bad month, but
relative to what was expected the (sales) numbers weren’t that
bad,” said Ken Perkins, president of Retail Metrics.

Perkins said 63 percent of retailers beat expectations,
well above the long-term average of 54 percent. Just 35 percent
missed forecasts.

The Standard & Poor’s retailing index rose 1.4 percent in
early trading on Thursday, recovering much of the losses
incurred earlier this week as Wall Street braced for weak
September sales.

Wal-Mart kept its profit forecast for the current fiscal
third quarter, but said the hurricanes cut 1 cent per share
from earnings in the period.

But retailers including Talbots Inc., TJX Cos. Inc.,
AnnTaylor Stores Corp. and New York & Co. Inc. all lowered
profit forecasts, while Federated Department Stores Inc. and
Kohl’s Corp. were among the chains posting disappointing sales.

Perkins said retailers clearly relied on discounts to drive
sales growth, and paid the price with weaker profits.

“That’s a harbinger of what we’re about to see as we head
into the holiday season,” Perkins said, adding that retailers
were “chasing a shrinking pie of consumer spending” as gasoline
and heating bills pile up.

Slumping consumer confidence was a key concern as retailers
gear up for the holiday season. Wal-Mart has already vowed
aggressive discounts, setting the stage for a fiercely
competitive holiday season.

Talbots, which cut its full-year profit forecast on weak
September sales, said its annual survey found consumers are
increasingly worried about high fuel prices and the economy,
and those concerns are making them more conservative in their
shopping habits.

Britt Beemer, head of America’s Research Group, which
tracks consumer trends, said Labor Day sales in September are
an accurate predictor of holiday demand nine times out of 10,
and this year’s sales were disappointing.

Beemer said he surveyed 1,000 people two weeks before Labor
Day — which was also before Hurricane Katrina — and some 38
percent said they intended to go shopping over the holiday
weekend. He polled those same people again after Labor Day
weekend and found that only 28 percent actually shopped.

“If things don’t change, I still think there is a
possibility that we could have the first negative Christmas
sales season in two decades,” Beemer said, referring to
same-store sales.

WAL-MART KEEPS FORECAST

Wal-Mart, the world’s biggest retailer, said September
same-store sales rose 3.8 percent, toward the high end of its
forecast.

But the results were boosted by sales of gasoline at its
Sam’s Club warehouse stores, and the retailer was quick to
point out that sales would have been up a more modest 3.2
percent without the lift from gasoline sales.

Costco also said steep oil prices boosted September
same-store sales. U.S. same-store sales jumped 10 percent, but
the gain would have been just 8 percent if not for a steep 47
percent year-over-year jump in gasoline prices.

Target Corp. reported a better-than-expected 5.6 percent
September same-store sales increase and maintained its profit
forecast for the rest of the year.

Federated reported a 1.3 percent September same-store sales
increase, below its expectations for a 2 percent to 3 percent
increase. The retailer blamed lost sales from stores closed due
to the hurricanes, as well as reduced spending because of
higher gas prices and weakening consumer confidence.

Apparel chains were among the laggards, with several
companies noting a drop in demand during the last week in the
September.