Fixated on news coverage of the war in Iraq and worried about their jobs, shoppers stayed away from the malls in March, giving the nation’s retailers another month of disappointing sales. Unseasonably cool weather in parts of the country and a late Easter also curtailed demand.
As merchants reported their results Thursday, it was clear that department stores, particularly May Department Stores Inc., again fared badly, announcing sharp declines in sales from stores open at least a year. But even usually strong Wal-Mart Stores Inc. struggled, posting its weakest increase since December 2000.
Gap Inc. and Pacific Sunwear of California Inc, were among the few retailers reporting solid sales gains that beat Wall Street expectations.
Even as it appeared that the United States would succeed in the war in Iraq, reducing some of the uncertainty that has made the retail business more challenging, some analysts were not convinced consumers will respond by increasing their spending.
“The gnawing negative is the economy,” said John Morris, an analyst at Gerard Klauer Mattison. “There is a lot of worry out there about the job picture.”
In a positive sign for the job market, the Labor Department announced Thursday that new claims for unemployment benefits fell last week by a seasonally adjusted 38,000 to 405,000. But even with the bigger-than-expected decline, the level of claims still pointed to a sluggish job market.
“We have to start seeing an improvement in the fundamentals of the economy,” said Michael P. Niemira, vice president of Bank of Tokyo-Mitsubishi Ltd.
Mike Green, vice president of retail at the consulting firm Cap Gemini Ernst & Young, was more bullish, believing an end to the conflict will spur spending.
“There is a lot of pent-up demand. And the economy seems to be turning a corner,” he said.
Bank of Tokyo-Mitsubishi’s same-store sales tally of 79 stores was down 0.2 percent in March, from the year-ago period, in line with its reduced forecast for the month of unchanged to down 1 percent. That compared with an increase of 6.4 percent a year ago.
Same-store sales are considered the best indicator of a retailer’s health.
Niemira said a big factor depressing March sales was the timing of Easter, which this year falls on April 20, compared to March 31 last year. Niemira estimated the calendar shift lowered sales by about 2 percentage points.
The war’s effect, he believes, depressed sales by no more than 0.5 percentage point, since consumers worries about the conflict have been factored into results over the past few months.
He estimated that April same-store sales, benefiting from the quirk in the calendar, will be up anywhere between 2.5 percent and 3.5 percent.
Niemira and other analysts believe that studying both March and April sales will offer a better measure of the spring season, although the season appears to be already a wash.
Morris expects stores to accelerate price cutting soon to get rid of spring merchandise, putting more pressure on profits.
In response to a weak environment, stores have cut inventories and costs since last year, but as Ken Perkins, an analyst at Thomson First Call, said: “There is only so much you can squeeze out of the operation.”
According to Thomson First Call, earnings growth for 137 retailers is now expected to be up only 2.1 percent for the first quarter, sharply reduced from projections of a 12.5 percent gain made at the start of the year.
Target and J.C. Penney Stores Co. Inc. were among a handful of stores that warned Thursday that first-quarter earnings would be disappointing.
Wal-Mart said same-store sales were up only 0.7 percent in March, although results were measured against a 9.5 percent gain a year ago. Analysts surveyed by Thomson First Call expected a 1.5 percent gain.
Target said same-store sales were down 2.3 percent, below Thomson First Call’s consensus for a 1.9 percent decline.
In the department store sector, May posted a steep 11.4 percent decline, worse than the 8.8 percent drop analysts anticipated.
Penney, blaming the “geopolitical environment and economic conditions,” said same-store sales were down 5.5 percent in its department store business.
Footwear stores were the only category to do worse than department stores. Niemira’s tally showed footwear same-store sales fell 7.1 percent during March, while department stores sales were off 5.5 percent.
There were some bright spots.
Sears, buoyed by a strong performance in its home improvement business, turned in better-than expected results in its domestic stores, posting a same-store sales decline of 3.1 percent. Analysts had expected a 9.4 percent drop.
Gap, continuing a turnaround, said same-store sales were up 9 percent, beating Wall Street’s estimates of a 5.3 percent gain. The retailer said consumers responded well to spring fashions at Gap and Old Navy stores.
Teen retailer Pacific Sunwear reported same-store sales up 9.5 percent, beating analysts forecasts of a 5.5 percent gain.
