Nov 2, 2010
Warm weather and fewer events to hurt October sales
Nov 2, 2010
(Reuters) - U.S. retailers are poised to report their weakest monthly sales gains in six months as unseasonably warm weather and fewer shopping events hurt demand for fall merchandise in a slowly recovering U.S. economy.
Abercrombie & Fitch A/W campaign 2010
Analysts expect same-store sales to have risen 1.7 percent in October, compared with a 1.8 percent increase last year, according to Thomson Reuters data.
"Unfortunately, this month was abnormally warm. In this economy, where so many consumers are living paycheck to paycheck, it really has become very much a 'buy now, wear now' type mentality," said Ken Perkins, president of research firm Retail Metrics.
"A lot of the 'buy now, wear now' sales just didn't happen because it was too warm," Perkins said, underscoring that many retailers had already stocked their shelves with fall merchandise expecting a seasonal dip in temperatures.
Retail chains from Target Corp to J.C. Penney Co Inc and Abercrombie & Fitch Co will report sales at stores open at least year -- a closely watched industry gauge known as same-store sales -- on Wednesday and Thursday.
Consumers, bombarded with a daily dose of mixed economic data, may have chosen to pause from shopping ahead of the holidays, after being enticed by big discounts in the back-to-school season, analysts said.
"With back-to-school shopping essentially ending in September, we would surmise that the month between the conclusion of back-to-school up until Halloween also contributed to a lull between events," Robert Drbul, an analyst at Barclays capital, said in a research note.
A report from the Commerce Department on Monday showed consumer spending rose 0.2 percent in September after advancing 0.5 percent in August. It was held back by a surprise 0.1 percent decline in income, the first slide since July 2009.
Still, an October sales rise would mark the 14th consecutive month of rising sales for U.S. retailers, after a year of declines during the recession.
NOT A SCARY ENDING?
Teen apparel retailers such as Abercrombie and American Eagle Outfitters Inc, which turned to discounts to win shoppers, are expected to post some of the largest sales gains, after suffering some of the biggest declines last year, according to Thomson Reuters. Discount retailers should also do well, industry watchers said.
"Most of these markdowns are built into their plans," Perkins said, adding: "They have to do this in this environment. They don't want to, but the longevity and depth and breadth of this recession has been so abnormal."
Many analysts such as Lazard Capital's Todd Slater expect department stores and specialty apparel retailers to report the biggest month-to-month sales declines in October. Gap Inc is expected to a significant underperformer in the month.
That said, October typically has the lowest sales in the fiscal third quarter and analysts still expect most companies to stand by their prior quarterly profit forecasts.
Also, despite the tepid start to the month due to unfavorable weather, retailers should have gotten some help due to sales of Halloween-related merchandise ranging from costumes to candy, analysts said.
JPMorgan analyst Charles Grom warned Halloween-related sales will still not do enough to offset the warmest October in 20 years.
Weather was warmer or drier in most of the United States, likely resulting in steeper than expected markdowns and therefore margin pressure, Grom said, adding that only the Northwest saw temperatures in line with the normal average.
(Reporting by Dhanya Skariachan; editing by Andre Grenon)
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