Weak Retail Sales May Spur More Profit Warnings

If there was any question of how much an early Easter would hurt sales at already-struggling U.S. retailers, J.C. Penney gave a resounding answer last month with a quarterly profit warning.

AP

The mid-tier department store operator, which counts half of American families as its customers, said earnings for its first quarter, which began on Feb. 3, could miss initial forecasts by as much as 38 percent after sales through Easter came in well below expectations.

Investors are now bracing for more profit warnings Thursday, when major U.S. retailers, including Wal-Mart Stores, Gap and Kohl's , report their final sales figures for March.

"We think it's possible that Nordstrom , Macy's and Kohl's could confess and warn of softer first-quarter earnings per share on Thursday," JPMorgan analyst Charles Grom wrote in a research note.

A Macy's spokesman declined to comment. The company no longer reports monthly sales and said in February that it would stop providing quarterly earnings forecasts.

Officials at Kohl's and Nordstrom were not immediately available for comment.

U.S shoppers have cut spending amid high gasoline prices, soaring food costs, dropping home values, a credit market crunch and a weakening job market.

But consumers have shown some willingness to keep on spending for special occasions, like the back-to-school season or Christmas.

No Easter Boon

Under other circumstances, Easter shopping could have fattened March sales results, spurring early consumer demand for spring merchandise and allowing retailers to sell items at full price.

But the holiday landed on March 23 this year -- two weeks earlier than a year ago -- and it came during a cold, damp month when many consumers were still wearing winter coats, sweaters and boots.

That gave cash-strapped shoppers an easy excuse to delay purchases of sandals, short-sleeved shirts and Easter dresses, and could mean retailers will ring up their worst March sales in 23 years, according to Weather Trends International.

"Retail sales will very likely come in well below expectations ... despite the earlier shift of Easter into March vs. April last year," Bill Kirk, chief executive of the research company, said in a statement.

Weather Trends said March was the snowiest in 12 years, the wettest in 10 years and the coldest in three years.

Retailers also face tough comparisons with last year's March results.

Easter fell on April 8 last year, so sales of holiday-related items came largely during March. The holiday also landed late enough in the monthly reporting period to generate strong sales of spring merchandise.

Apparel Struggles

Last year, J.C. Penney said March sales at department stores open at least a year, or same-store sales, rose 10.6 percent on strong demand for clothing.

But this past March, analysts believe, department stores and apparel retailers had an especially difficult time as shoppers delayed purchases of furniture, jewelry and clothes.

For March, Penney expects its same-store sales to decline in the low-double-digit range.

After Penney's warning, Retail Metrics President Ken Perkins said analysts' estimates for department stores had dropped. Same-store sales for the group are now expected to fall 8.2 percent in the month, compared with a previous forecast for a 4.3 percent decline, he said.

The estimated decline for apparel retailers' sales has also worsened, to 3.4 percent from 2.7 percent, he said.

Marie Driscoll, a retail analyst with Standard & Poor's Equity Research, said consumers had become even more judicious when it comes to buying new clothes.

"More and more, consumers are buying close to need," she said. "They don't want to buy far in advance."

While that trend hurt March sales, she said it could help April results if the weather turns warmer and customers finally head to the stores to buy T-shirts and dresses.

Bargain-Hunting

Discount retailer Wal-Mart Stores is once again set to benefit from strong sales of necessities, like groceries, laundry detergent and toothpaste.

And warehouse club operators like Wal-Mart's Sam's Club, Costco Wholesale and BJ's Wholesale Club could continue to get a boost as motorists stop there for low-cost fuel and then load up on cheap groceries inside.

Perkins said the forecast of March same-store sales, based on his index of 37 retailers, was for a rise of 0.4 percent, compared with a year-earlier gain of 6 percent. But excluding Wal-Mart, the outlook is for a fall of 0.2 percent.

With the Easter shift affecting March and April sales every year, many analysts say that simply looking at March alone would paint too bleak a picture.

But given the soft economy, Perkins said that this year, even the combined forecast for March and April was not bright.

"Taking them in combination... they're going to look weak," he said, "but not as weak as they're going to look this month."

© 2008 CNBC.com