And with larger-than-expected inventories of seasonal merchandise clogging store shelves, retailers are starting to discount merchandise aggressively.
This is a bad omen heading into the all-important holiday season. Analysts say it may indicate that there will be deeper discounts and thinner profit margins this year.
Weak September sales also could hurt third-quarter earnings in the sector. About 40% of third-quarter sales are rung up in September, making it the largest and most important month of the period, according to Bear Stearns analyst Christine Augustine.
"Going to Be A Debacle"
“I think (Thursday) is going to be a debacle,” said Charles Grom, an analyst at JP Morgan.
The news could be particularly bad for department stores, he said.
“September is a month that the weather does matter,” Grom explained. “So I think we’re going to see weakness across the board. We’ve seen Target, we’ve seen Family Dollar, negatively preannounce. So, I’m not expecting anything great tomorrow.”
Retailers are facing tough comparisons with strong growth last September. Department stores, in particular, are up against some particularly strong earnings in the year-ago period, when same-store sales in the sector rose about 8.9% overall.
In addition to the warmer temperatures, retailers also still have to contend with higher gas prices and a weak housing market. Gas prices reversed their downward trend in September, and actually rose 17%, on average, in September, Augustine said, in a research note.
Mall Traffic Slowed
“Higher gas prices likely drove fewer mall visits, while warmer weather likely hindered demand of fall apparel,” Citigroup analyst Kimberly Greenberger said. She estimates mall traffic fell 3% in September.
The analyst said she is most cautious on retailers with high levels of wintry apparel given the warmer temperatures that dominated the most of the country. These retailers include J. Crew Group, with its focus on sweaters and outerwear; Children’s Place, with its focus on coats; and Pacific Sunwear, with its high levels of fleece.