Retail Traffic

Retail's merry-go-roundenters '02 home stretch

It's earnings season, but do you know where your retailer's sales are? Weaker than usual, that's where. And many retailers are finding their stocks trading dangerously close to new 52-week lows.

As September sales numbers continue streaming in this week, the news is positively bleak for full-line retailers, and not-so-stellar for discounters. Expect more of the same later this month when they report 3rd-quarter sales. Now admittedly, all of this news is set in the context of a declining stock market, but comp-sales comparisons should be at least marginally stronger since they're compared to the post-Sept. 11 period of 2001.

Overall, the September results are painting a much clearer picture for the critical holiday sales period, and it doesn't look grand -- stronger stores are finding rough sailing and weaker department stores are (still) struggling along.

While some deep discounters like Big Lots are reporting stronger than expected earnings (an 11.6% increase in total sales for the four weeks ended Sept. 28 and a 6.3% increase in comp-store sales in September), darling discount machines Wal-Mart and Target are finally feeling the effects of a slower economy and increased competition with one another.

Even venerated Sears has seen its share of changes of late. Last Friday, Sears' announced that EVP and CFO Paul Liska would succeed Kevin Keleghan as vice president and president of credit and financial products. Monday morning, Sears president and CEO Alan Lacy said on a conference call that Keleghan was asked to leave the company for reasons relating to "personal credibility". He also said management believes that Keleghan's issues do not affect the fundamental operations of the credit division.

Still, Sears' credit division, which has been propping up slower sales numbers at the company's stores, revised its profit growth downward to mid-single-digits from the expected double-digit range. All of this news is making analysts extremely nervous about the quality of earnings at the credit division, particularly since it represents about 65% of Sears' total operating profit.

Sears lowered its earnings guidance for 3rd-quarter 2002 to $0.80-$0.82 per share versus $0.80 for 3rd-quarter 2001, which was well below the consensus estimate of $0.86. The company did reaffirm its guidance for fiscal 2002 earnings -- it expects a healthy 22% increase in earnings per share to $5.15 versus $4.22 last year.

But Sears isn't alone in its troubles. Analysts are even questioning Target's long-term strength. With Kmart out of the equation as a strong discount player, the battleground between Target and world-No.-1 retailer Wal-Mart has gotten bloodier as the two increasingly go head-to-head in product categories like children's clothing.

"I'm not sure how much longer they [Target] are going to remain a darling of the industry," said Ladenburg, Thalmann & Co. analyst Eric Beder.

On the heels of the weaker-than-expected September and 3rd-quarter numbers, retailers are understandably cautious when eying the holiday season to come. Looking ahead to next year, though, Morgan Stanley has tapped some tried-and-true favs -- Kohl's, Target, Wal-Mart, Costco, Sears and BJ's Wholesale Club -- as longer-term winners.

Stay tuned to for a complete wrap-up of the latest retail sales figures as they're released in the coming days and weeks.

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