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Target, J.C. Penney Forecast Slower Consumer Sales

Written By Brian Hicks

Posted October 8, 2008





It’s not even Halloween yet and already the major retailers are starting to get nervous about the holiday season.

One by one, nearly all of them are lowering their sales forecasts as they head into what is largely the make or break season for them.

That’s not good considering consumer spending accounts for 72% of U.S. GDP. Any stumble on this front would be hard to swallow.

But that looks like exactly what is happening these days as wallets slam shut and consumers revert to frugality out of necessity

In fact, when the quarterly numbers  are released later this month, they are expected to show that consumer spending shrank 3 percent or more.

That would be the first quarterly decline since 1990, ahead of the 1991 recession, and the steepest since 1981.

Ho. Ho. Ho. 

From Bloomberg by Heather Burke entitled: J.C. Penney, Nordstrom Lower Forecasts as Sales Fall

“J.C. Penney Co., Kohl’s Corp. and Nordstrom Inc. forecast third-quarter profit that may trail analysts’ estimates after September sales fell because of consumer concerns that the Wall Street meltdown will cost them their jobs and savings.

Sales rose at Wal-Mart Stores Inc., the world’s largest retailer, and Costco Wholesale Corp., helped by food purchases and discounts, as shoppers shied away from full-price department stores.

The biggest banking crisis since the Great Depression is threatening retailers’ sales going into the holiday-selling season, the largest source of revenue for most stores. Consumer spending, which accounts for two-thirds of the U.S. economy, may remain sluggish as banks hoard cash and job losses mount.

“Consumers are shell-shocked right now, and I don’t think they’ve got the ability to spend,” Stephanie Hoff, an analyst at Edward Jones in St. Louis, said today in an interview. “Usually if sales are weak for this time of year, it doesn’t bode well for holiday.”

A clampdown on loans and higher borrowing costs may exacerbate consumers’ woes heading into the holidays. The U.S. lost the most jobs in five years in September, the Labor Department said Oct. 3. Gasoline prices remain 25 percent higher than a year earlier and home prices have tumbled.

Sixty-three percent of retailers who reported results today fell “short of lowered expectations,” Ken Perkins, president of Retail Metrics LLC, wrote in a report.”

Target, the second-largest U.S. discount retailer, said third-quarter profit may be “slightly below” analysts’ estimate of 52 cents a share after same-store sales declined 3 percent. The company expects more people to be unable to pay their Target credit-card bills.

Kohl’s said third-quarter earnings would be at the low end of its forecast of 51 cents to 56 cents a share. Customers are making “need-based” purchases, pushing monthly sales down 5.5 percent, the company said. Analysts were estimating profit of 54 cents.

Sales plunged 12 percent at department-store chain Dillard’s Inc.

Teen retailer American Eagle Outfitters Inc. lowered the high end of its third-quarter forecast to as much as 34 cents a share from 36 cents. Pacific Sunwear of California Inc. said third-quarter results would be at the “low end” of its forecast. Both reported comparable-store sales declines.

The National Retail Federation has forecast the worst holiday season since 2002. The holiday period accounts for 20 percent to 35 percent of a retailer’s annual revenue. Chains including Kohl’s and J.C. Penney have reduced inventory to try to preserve profit margins as sales slump.”

Don’t look now but the Grinch is in the house.

Never has so much depended on so few….which is really quite sad.

We used to be a nation that saved and produced. Today all we can muster is to borrow and spend.