September same-store sales growth falls to its slowest pace in three years, forcing a number of retailers to cut their third-quarter earnings forecasts.
The Thomson Financial Same Store Sales Index rose 1.4% in September, below the estimated 2.1% increase and last year's 4.2% growth. That is the lowest figure for the index since August 2004's 1.2% gain.
But Wal-Mart Stores, the world's largest retailer, bucked the trend. Despite posting same-store sales that were weaker than analysts were expecting, Wal-Mart raised its forecast for the quarter, sending its shares higher.
Wal-Mart said sales in stores open at least 12 months, a key metric of retail sales growth, rose 1.4 percent. That was slightly lower than the average analyst estimate of 1.8 percent reported by Thomson Financial, but within Wal-Mart's own forecast, which called for 1 percent to 3 percent growth.
Excluding Wal-Mart, Thomson's index still climbed just 1.4%, versus growth expectations of 2.2% and the prior year's 6.3% increase.
The retailer said sales growth was driven by its grocery and pharmacy departments, but, like many other retailers, it faced weak home and apparel sales. Wal-Mart blamed unseasonably warmer weather. That comment was echoed by other retailers, including several of those who reduced estimates for the quarter.
Apparel Demand Weak
The balmy temperatures, especially in the Northeast and Midwest, cooled demand for items such as fall sweaters and fleece jackets.
“Warm weather no doubt explains part of the chill in September sales, but shoppers are also clearly telling us they want to hold the line on spending," said Frank Badillo, a senior economist for market researcher TNS Retail Forward. "That was the case for back-to-school spending and shoppers are also cutting their plans for Halloween and the holidays."
Investors will get a further read on the state of the consumer on Friday, when the Commerce Department reports its retail sales report at 8:30 am New York time.
Men's Warehouse, American Eagle Outfitters, Target, Limited, Nordstrom, and JC Penney were all among those reducing their estimates for the third quarter due to weakness in September. Kohl'ssaid earnings would be at the low end of its forecasted range.
American Eagle Outfitters posted a 2 percent decline in September same-store sales on Wednesday after markets closed.
Limited Brands also lowered its forecast. The retailer's sales fell 4.4 percent, hurt by a decline in sales of its intimate apparel and sleepwear. Its Victoria's Secret and Bath & Body Works stores were hurt by negative traffic levels, the company said.
Gap continued to struggle. September same-store sales fell 7 percent, worse than the 4.4 percent decline that analysts expected.
Target said same-store sales increased a slim 1.2 percent, dragged down by weak apparel sales. Analysts had expected a 2.2 percent estimate. The company said it believes its full-year earnings per share results will be below $3.60. The company previously said it expected to earn "slightly more or slightly less" than that amount.
Another area of unexpected weakness was among high-end department storesJ.W. NordstromandSaks. Both reported a healthy sales increases, but the gains fell short of analyst estimates.
Nordstrom reported an increase of 3.1 percent, but that missed the average analyst estimates of 5.0%, reported by Thomson Financial.
Although Nordstrom said it was pleased with its sales for the month, it warned that it entered the quarter with inventory levels above its plans, and therefore lowered its earnings outlook.
Saks fared better than Nordstrom. Although its sales fell short of view, it held on to its earnings forecast.
Among the headwinds facing retailers are rising gas prices and a weak housing market. Gas prices reversed their downward trend in September and actually rose 17 percent, on average, in September, Bear Stearns analyst Christine Augustine said in a research note.
“Higher gas prices likely drove fewer mall visits, while warmer weather likely hindered demand of fall apparel,” Citigroup analyst Kimberly Greenberger said. Ahead of the release of the retail reports, she estimated mall traffic fell 3 percent in September.
Teen Retailers Shine
In addition, retailers are facing tough comparisons with strong growth last September. This was particularly true among the department stores.
Macy's was one of the retailers facing a difficult comparison to last year when its sales rose 6.2 percent. Sales in the year-ago period benefited from the conversion of more than 400 former May stores to the Macy's nameplate. In the latest period, Macy's sales fell 2.7 percent.
JC Penney suffered a 4.6 percent drop in same-store sales, well below analysts' 0.1 percent forecast. The company slashed its third-quarter earnings forecastto $1.00 to $1.04 per share, compared to the previous guidance of $1.28.
Some Teen Retailers Shine
Perhaps the best performance came from teen retailersZumiez and Buckle.
Zumiez, which has an active, sporty image, has been successful in outpacing estimates for several straight quarters. In the latest period, the company posted impressive same-store sales growth of 13.9 percent. Analysts were estimating the retailer would report an increase of 6.6 percent.
Meanwhile, Buckle said same-store sales rose 10.9 percent, compared with the 2.0 percent average analyst estimate.
But it was not all good news at with the teen retailers. Wet Seal sales fell 7 percent. The company also cut its earnings forecast.
Costco Wholesale fared better. It reported a better-than-expected increase in quarterly profit on Wednesday, helped by improved margins. The No. 1 U.S. warehouse club operator said September sales at stores open at least a year were stronger than Wall Street forecasts.
The September sales results marked a rebound from August, when Costco reported weaker-than-expected sales, hurt by a decline in store traffic that it attributed to extremely high temperatures in California.
It's not a huge surprise that weak September sales are hurting third-quarter earnings. About 40 percent of third-quarter sales are rung up in September, making it the largest and most important month of the period, Augustine said.
The latest round of sales reports will likely weigh heavily on those attempting to gauge the health of the economy.
“We have been expecting that we would be seeing greater signs of weakness as we push into the fourth quarter,” Badillo said.
Christina Cheddar Berk is a news editor at CNBC.com. She can be reached at Christina.email@example.com.