Pricier Food, Gas Expected to Hamper Retail Sales

U.S. retailers are set to report gloomy February sales later this week as stormy weather and signs of inflation deterred shoppers from stocking up on spring merchandise.

The major U.S. chain stores have found themselves forced to offer margin-sapping discounts in a month that is normally reserved for full-priced merchandise as they try to attract consumers, who are being squeezed by high prices on gas and food.

One class of shoppers that had been spending pretty steadily, despite the signs of slowdown that emerged during the holiday shopping season, is also being watched for weakness -- teenagers.

Teen retailers "are resistant to economic concerns, but not immune. But it's hard to be a teen retailer and get fashion right all the time," said Richard Jaffe, analyst at Stifel Nicolaus. "Urban Outfitters is performing very well. Clearly, some teens are still shopping, but they're shopping at Urban because it has what they want."

Both Kohl's and Target last week forecast quarterly profit below analysts' estimates, citing a "challenging" economic backdrop. Target said shoppers are buying less clothing in favor of lower-margin needs like food.

Limited Brands , the operator of the Victoria's Secret and Bath & Body Works chains, last week forecast that pressure on margins would continue in the first quarter and lowered its February sales projections.

The International Council of Shopping Centers forecast chain store sales growth slowed to a rate of 0.5 to 1 percent in February, down from 2.5 percent a year earlier.

Cold weather and heavy snowfall, especially in the U.S. West, likely helped retailers clear winter items off shelves, but limited demand for spring products to "very brief periods," analysts at Planalytics wrote in a report. While February was warmer than a year-earlier, a wintry mix of rain and snow, primarily in the East, likely offset the benefit of the warmer temperatures, the report said.

Grey Skies

U.S. consumers are taking a bleak view of the economy, with sentiment dropping to recessionary levels last month according to the Reuters/University of Michigan Surveys of Consumers.

The mood is not set to improve soon, with expectations tumbling sharply to the lowest reading in 16 years, when the U.S. economy was in a recession.

Other major economic indicators show consumers struggling to keep up with rising prices. Data from the Commerce Department last week showed personal spending rose in January, but when adjusted for inflation, the increase disappeared.

U.S. drivers will pay much more at the gasoline pump this spring and summer than they did last year, even though supplies are plentiful and motor fuel demand is down, the government's top energy forecasting agency warned on Wednesday. The culprit is higher crude oil prices. Crude hit a fresh record on Monday at $103.39 a barrel.

The first two major retailers to report February sales -- warehouse clubs Costco Wholesale and BJ's Wholesale Club -- both cited strong sales of gasoline in their better-than-expected January sales results.

Costco and BJ's monthly sales figures will be included in their quarterly earnings reports due Wednesday. Most chains report February sales from stores open at least a year on Thursday.

Looking ahead, the timing of Easter, which is set to fall on March 23, the second earliest possible date, may help some chains drum up sales, wrote Needham & Co retail analysts.

Retailers expected to post the strongest February sales include Abercrombie & Fitch, Tween Brands , Urban Outfitters and discounter TJ Maxx, operated by TJX Cos , analysts at Stifel Nicolaus wrote in a research note.

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