Oct 12, 2007

Retail Sales Outlook DiminishesBy James CovertOnline.WSJ.com

Blaming unusually balmy weather that quelled demand for fall fashions, department stores and apparel retailers reported some of the most disappointing results. J.C. Penney Co., Nordstrom Inc. and Limited Brands Inc. all cut their estimates for third-quarter profits. Disappointing results at upscale retailers Nordstrom and Saks Inc. sparked fears that a bumpy stock market may threaten holiday spending by well-heeled shoppers.

Wal-Mart Stores Inc., however, raised its earnings forecast, with analysts citing strong controls on costs and inventory.

Retailers collectively reported a 1% increase in September same-store sales, or sales at stores open at least a year, according to an index of 39 major chains compiled by Lazard Capital Markets LLC. That is well below the 3.9% gain seen a year earlier, and is among the weakest monthly showings in several years, said Todd Slater, an analyst at the New York investment firm.

“I think this confirms pessimistic views about the holiday season,” Mr. Slater said. “The consumer needs a reason to buy, and there are probably not as many ‘must-haves’ this year as in the past.”

The downbeat retail-sales data underscored the importance of other sources of growth to the nation’s economy, notably exports, which continued to rise in August. Indeed, yesterday’s report of a smaller-than-expected August trade deficit led many economists to boost their estimates of how much the economy grew in the third quarter. Economists have also grown less pessimistic about the outlook for the economy since the Federal Reserve cut interest rates last month.

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