It doesn't get much worse than this

Investors brace for big declines in September retail sales

By Jennifer Waters, CBS.MarketWatch.com Last Update: 11:00 AM ET Oct. 10, 2001

CHICAGO (CBS.MW) - Not since the last great world war have retailers battled so desperately for sales and come up so empty-handed. That will be glaringly evident by Thursday, when most of the nation's top retailers report September monthly sales results that will show just how deep and hard consumers have burrowed. The result will be double-digit drops in same-store sales for nearly every sector of the industry.

"September may be the worst month since World War II," said Merrill Lynch analyst Daniel Barry.

To compound the problem further, September is the month for full-priced sales tickets, supposedly churning out fat profit margins before the deep discounting begins in October and into the crucial holiday selling season.

Blame it on the 19 hijackers who crumbled consumer confidence when they commandeered commercial jetliners to knock down the World Trade Center or on the deteriorating state of the economy long before the horrific events of Sept. 11. Either excuse works in explaining why shoppers aren't shopping for anything more than the basics and why they will no longer be able to forestall a recession.

As uncertainty over an escalating war and waning economy heightens, fewer and fewer people will be making it to the malls and shopping districts.

Impact of Sept. 11 attacks

The traffic and sales patterns in the last month alone are a telling tale. The month started off slow, but not alarmingly so. And then the world stopped on Sept. 11. Except for the likes of discount behemoths like Wal-Mart and Target, shopping stayed at a near-standstill for at least one more day. It picked up in the first post-terrorist weekend - some suggest that the sports blackout helped more than anything else - and continued to accelerate throughout the month.

"In what had already begun as a challenging and difficult fall season the events of Sept. 11 have hit retailers hard," said another Merrill Lynch analyst, Mark Friedman. "The fall off in sales immediately that week is expected to cost across the board."

Though sales did pick up, they weren't fast enough to outpace year-ago comparisons or to undo the damage already caused, according to RCT's National Retail Traffic Index. The index, which measures chain-store traffic at major shopping malls, fell again last week for the 23rd consecutive time. What's worse, is the rate of decline accelerated to a minus-4.4 percent from a minus-2.8 percent drop the week before.

But here's the real catch: On Sunday, when the U.S. and Britain launched retaliatory missiles into Afghanistan, mall traffic slowed better than 9 percent vs. a year ago.

Where did the people who did venture out shop? At Wal-Mart, whose spokesman described Oct. 7 as "a normal Sunday" when "people shopped...and continued to shop throughout the day."

In it weekly sales update, the Bentonville, Ark.-based giant said consumers bought with a bunker mentality: staples flew off the shelves while big-ticket and those want-them-but-don't-need-them items barely budged.

It's not likely to change anytime soon either. "Consumers in the future will be focused on buying basic staples at value-discounted prices and will be less likely to go to malls and department stores or see shopping as a leisure activity," predicted analyst Bill Dreher at Robertson Stephens.

Take that mindset to most department and specialty apparel stores, where fashion rules the day, and it's easy to see why they have been hit hardest.

"That ongoing dichotomy between the performance of discounters and the department and specialty stores has been a hallmark of this year," said Bank of Tokyo-Mitsubishi analyst Michael Niemira. "However, that gap widened in September, which seemingly carried over into the beginning of October."

Niemira's retail chain-store index slipped by 0.8 percent for the week that ended Oct. 6, with sales generally on-to-below plan. "Given the pronounced weakness among the department and specialty stores," Niemira said he lowered his September sales estimates to a flat to 1 percent comparable-store sales increase.

NY retailers hit hard

At Bloomingdale's, Chief Executive Michael Gould accepts that his stores will not be brimming with shoppers when tragedy strikes. He saw that first-hand when he could hear echoes in his 59th Street flagship in Manhattan for nearly 10 days after the attacks against the U.S.

Sales plummeted a staggering 40 percent as the usual hordes of tourists fled or avoided the city. As a result of Bloomingdale's and sister Macy's slowdowns, parent Federated Department Stores (FD: news, chart, profile) warned investors two weeks ago that its national sales were braking by 20 percent, or $110 million.

Most analysts now expect Federated same-store sales to plunge the furthest - estimates range from 12 percent to 20 percent - for the month.

As a group, department stores are projected to be down in the negative high single digits to low double digits, with May (MAY: news, chart, profile) and Saks (SKS: news, chart, profile) both at about minus-15 percent vs. weak increases last year. Sears (S: news, chart, profile) is expected to fall in a negative mid single digit.

Rival J.C. Penney (JCP: news, chart, profile), however, got lucky and recovered after an initial slowdown following Sept. 11, thanks to a series of well-timed special promotions. For the month, the company reported earlier this week, same-stores sales at both the department stores and the Eckerd Drug Stores were a strong 8.1 percent above last year.

Wal-Mart (WMT: news, chart, profile) said it is in line to report same-store sales gains in the 4 percent to 6 percent range. Kohl's (KSS: news, chart, profile) should fall in the mid-single digit gains, while Target (GT: news, chart, profile) and Kmart (KM: news, chart, profile) are expected to report flat to 1 percent gains.

Specialty retailers are expected to mirror department stores, with mid-double digits declines. They will vary, however, dependent on whom the customer is. Gap Inc. (GPS: news, chart, profile), for example, is expected to report negative comp-store sales in the mid-to-high 20s, while American Eagle Outfitters (AEOS: news, chart, profile) projections are in the minus-single digits.

Not surprisingly, such woeful sales results lead to depressing profit projections. US Bancorp Piper Jaffray analysts Jeff Klinefelter, for one, already has his red pen out to rework earnings per share projections.

"As a result of slower mall traffic during September, and the anticipated traffic levels during October, we plan to reduce EPS estimates significantly," he said.

http://cbs.marketwatch.com/news/default.asp?siteid=mktw

-- Martin Thompson (mthom1927@aol.com), October 10, 2001

Answers

It would be a big shock to learn that retail sales were anything but down, and substantially, overall.

-- Uncle Fred (dogboy45@bigfoot.com), October 11, 2001.