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Retail CFOs: Sales to Gain Despite Stagnant Economy

As investors sell off stocks and commoditieson Thursday, the widespread fear that the US is slipping into another recession is palpable.

Vannessa Obermaier helps customer Leandro Dacosta (R) as he shops at a Best Buy Inc.'s store in Miami, Florida.
Joe Raedle | Getty Images
Vannessa Obermaier helps customer Leandro Dacosta (R) as he shops at a Best Buy Inc.'s store in Miami, Florida.

But a new survey from consultants BDO offers a bit of encouragement.

BDO polled 100 chief financial officers at leading US retailers in August and early September, and although the vast majority of these executives expect the US economy will continue to be stagnant, they still expect to see same-store sales up about 3.5 percent during the second half of this year.

This forecast is the most optimistic result for BDO's annual survey since 2007. However, it is lower than the 4.7 percent retail sales gain measured by the Commerce Department in 2010.

“Retailers may not anticipate a full recovery in the near future, but we’re not seeing gloom and doom in sales expectations,” said Doug Hart, partner in the Retail and Consumer Product Practice at BDO USA. “Despite low confidence levels, macroeconomic conditions are not weighing on the consumer’s wallet as much as expected, and CFOs anticipate moderate spending levels to continue through the holiday season.”

On Wednesday, several early forecasts were issued for retail spending during the Christmas holidays, which is the busiest shopping period of the year.

While the forecasts varied, all three of the forecasts called for sales to be lower this year compared with the same period last year. However, none of the firms are predicting a blood bath at the malls.

Overall, the estimates were fairly consistent with what BDO is predicting. Research firm ShopperTrak is predicting a 3 percent increasein retail sales in November and December, while Kantar Retailcalls for retail sales growth of 2.8 percent and the International Council of Shopping Centers is looking for a 2.2 percent increase.

In the weeks ahead, there will be more holiday forecasts and surveys, including one from BDO, and it will be interesting to see where those estimates wind up.

At the moment, about 77 percent of the CFOs say they expect stagnant economic conditions.

Just 11 percent expect to see an economic turnaround within the next year, but that is higher than last year when only 9 percent expected things to turn around.

According to Hart, there has been much discussion among retailers about the disconnect they are seeing between consumer confidence, which is the lowest its been in several decades, and the way consumers are actually behaving. From their vantage point, consumer spending isn't falling off a cliff.

However, there is little debate about consumer confidence. Consumers are clearly frustrated by a number of factors ranging from the political gridlock in Washington to the continuing debt troubles both in the US and in Europe to high unemployment.

The majority, some 57 percent of the CFOs, expect unemployment is the biggest barrier to consumer confidence this year. The executives also pointed to fuel prices (17 percent), personal credit availability (14 percent), weak housing (7 percent) and inflation (5 percent).

BDO also asked the CFOs about merger and acquisition activity, and nearly all — 96 percent —expect M&A activity to rise or remain steady in the coming year. Most expected the deals to occur in the US.

Most the recent deal activity in the retail sector has involved private equity — BJ's Wholesale, J Crew, and Gymboree, to name a few. But, interestingly enough, the CFOs are expecting more of the acquisition to be made by other retailers.

The executives also expect the value of those deals will be lower than they have been in recent months. On average, the CFOs said they would expect buyers to pay an EBITDA (earnings before income and tax, depreciation and amortization) multiple of 6.6 for an acquisition compared with the 2010 average multiple of 6.8 and the 2009 average of 8.2.

Correction: An earlier version of this story incorrectly said CFOs expect a company acquiring a retailer would pay an EBITDA multiple of 6.5. The actual number is 6.6.

Questions? Comments? Email us at consumernation@cnbc.com. Follow Christina Cheddar Berk on Twitter @ccheddarberk.

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