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Holiday clothing sales may prove to be disappointing

Posted on: Tuesday, 27 December 2005, 13:51 CST

By Chelsea Emery

NEW YORK (Reuters) - A dearth of must-have fashions and stronger demand for electronics may have trimmed holiday apparel sales, likely disappointing retailers who hoped to cash in on the traditional year-end bounce, analysts said Tuesday.

"Based on what we've heard and seen so far, the fashion apparel stores and department stores are going to be hit with lower profits," said Kurt Barnard, president of Retail Forecasting Group, which tracks industry trends and consumer spending patterns.

The firm surveyed spending of consumers around the United States and noted more aggressive sale signs in windows.

"Whatever strengths fashion apparel did show came from deep markdowns," Barnard said.

Aggressive discounts at girls' fashion retailer Too Inc. led Sanders Morris Harris analyst Elizabeth Pierce to speculate that holiday sales may be trending below expectations.

The firm also cut its fourth-quarter earnings outlook on Urban Outfitters Inc. to 24 cents per share from 25 cents, citing the amount of clearance merchandise on the floor of Urban's Anthropologie shops.

"The lack of any 'must have' item on the apparel side has not helped (improve sales), as there was no sense of urgency to convince customers to shop early for seasonal apparel," Pierce wrote in a note to clients. "Also, it is highly likely that new electronics, including iPods and XBoxes, cannibalized apparel sales."

BRIGHT SPOTS

Still, teens' demand for the latest blue jeans could help boost retailers' results late in the quarter and consumers could sweep in with gift cards to grab clothing items they did not get under the tree, Piper Jaffray analysts noted.

Clothing tied with Apple Computer Inc.'s iPod as the most desired item this holiday season and teens' most desired gift cards came from American Eagle Outfitters Inc. and Abercrombie & Fitch Co.

"I saw a lot more focus on our retailers' gift card programs and that should translate into some very strong sales this week," said Matthew Ehrie, general manager of the Westfield Garden State Plaza, New Jersey's largest mall.

Ehrie said sales for stores in the mall were up 3 percent over the period stretching from Thanksgiving to now, year over year.

Casual clothing retailer Gap Inc., one of the most closely watched harbingers of retail sales, may be showing some improvement, according to Prudential Equity Group analysts. The Internet markdown rates declined for Gap and its partner stores, Banana Republic and Old Navy, week over week, Prudential noted in its survey.

Still, the research firm noted that Gap stores appeared to be discounting more items.

"The best (performers over the holiday selling season) were probably the discount stores like Wal-Mart Stores Inc., Target Corp. and TJX Cos. Inc.," Barnard said.

He declined to say which ones would likely perform the worst, but said: "the poorest probably would be the specialty apparel companies, most of them, and the department stores."

Source: REUTERS

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