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Analysts worry the poor showing means a weak holiday shopping season is in store.
©Associated Press
August 28, 2002
NEW YORK -- The critical back-to-school selling season isn't making the grade that merchants were hoping for, and Wall Street analysts are increasingly worried about consumer spending for the rest of the year.
Retailers including Federated Department Stores Inc., May Department Stores Inc., Sears, Roebuck and Co. and Target Corp. are seeing August sales below forecasts. Wal-Mart Stores Inc., the world's largest retailer, said Monday that overall company sales are tracking at the low end of projections.
"Sales have deteriorated sharply since early July, almost as if someone turned off a switch," Daniel Barry, an analyst at Merrill Lynch & Co. "It appears that the consumer is rolling over," he said.
Overall, school supplies appear to be faring better than apparel. And J.C. Penney Co.'s department store business has so far bucked the trend, reporting revenues that are above the company's goals.
But Merrill Lynch downgraded 16 retailing stocks on Tuesday: eight department stores and discounters and eight specialty stores. The nation's largest brokerage house also noted that a sluggish stock market and declining wages could hurt retailers of consumer electronics and home improvement merchandise, though it didn't downgrade any of that category's stocks.
"We have clearly gone through a sluggish period for the last two months," said Michael P. Niemira of Bank of Tokyo-Mitsubishi Ltd. "There are a lot more negatives out there than positives. The climate is making it exceedingly difficult to read where the consumer is."
A mixed bag of economic reports makes the consumer psyche picture even more complicated. Orders to U.S. factories for big-ticket goods spiked in July by the largest amount in nine months. Yet another report Tuesday showed consumers' confidence in the economy plunged in August.
Clearly, unseasonably warm weather has dampened back-to-school apparel sales, but Barry and other retail analysts believe the resiliency of consumer spending -- bruised by accounting scandals and a sluggish job market -- is beginning to crack. Barry is cautious, noting that in addition to economic uncertainty, sales momentum could be derailed by continued warmer-than-usual fall weather, a subdued mood that could surround the anniversary of the Sept. 11 attacks, and six fewer holiday shopping days.
With stores operating on lean inventories, Jeff Edelman, an apparel analyst at UBS Warburg, doesn't think merchants are panicking. He is also heartened by some improvement in back-to-school sales during the past week.