September Retail Sales Falter Amid Consumer Worries

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Retailers capped a weak back-to-school shopping season with modest September sales gains in data out Thursday.

Stagnant wage growth, waning consumer confidence, and worries over a pending government shutdown and potential default prompted consumers to keep their budgets tight, raising concerns over prospects for the upcoming holiday shopping season.

Sales at stores open at least a year rose 3.7% vs. a year earlier for those retailers reporting monthly comps, according to Ken Perkins, president of Retail Metrics. Analysts had forecast a 3.9% gain.

Excluding strong results from drugstore chainsWalgreen ( WAG ) andRite Aid ( RAD ), which reported September comps last week, retailers posted a modest 2.3% gain.

"The results weren't horrible, but they weren't great," said Perkins.

Back-to-school sales were sluggish for the month -- and "by all accounts" -- for the season overall, Perkins says.

"Given the strong correlation between back-to-school selling and holiday season, it raises a bit of a red flag on how the holiday will look," he said.

Shutdown Delays Data

Michael Niemira, chief economist at the International Council of Shopping Centers, says he's waiting to see the Commerce Department's own retail sales data tally before he makes a call on back-to-school sales. September sales were due to come out Friday, but have been postponed due to the government shutdown.

"The impression left by retailers was back-to-school was weak," he said. "But I think we need broader data."

Consumers had two factors in their favor last month -- a decline in gas prices and heavy promotions by retailers, says Perkins.

"Both didn't contribute to any significant uptick in spending at most retailers," said Perkins.

But ongoing job worries, stagnant wage growth, waning consumer confidence, government shutdown concerns and a lack of newness in fashion kept consumers from spending freely, Perkins says.

The weakness for the month, he adds, was in the apparel segment.

The stock of giant apparel retailerGap ( GPS ) sank more than 5% after hours Thursday following the company's report of a 3% drop in September same-store sales vs. a year ago. Analysts expected a 1.8% gain.

"As consumers look to spend elsewhere on bigger-ticket items like appliances, it's been crowding out spending in department stores, specialty apparel stores and particularly teen apparel retailers," Perkins said. "This is similar to what we saw in second-quarter numbers with teen apparel retailers reporting negative same-store sales."

The teen segment is projected to post the worst same-store sales showing of all retail segments in the third quarter, with estimates for a 7% year-to-year decline.

Teen apparel chainBuckle ( BKE ) and action-sports retailerZumiez ( ZUMZ ) both missed views in September and saw a decline in comps. Zumiez saw September same-store sales slip 0.6% from a year earlier, below forecasts for a 0.3% decline. Buckle saw a 4.5% drop in comps vs. estimates for a 1.5% gain.

'Mixed Picture'

Niemira calculates September same-store sales rose 3.5% vs. a year earlier.

"It's a mixed picture overall," he said. In general he calls the month's showing an "apparel story."

"This year we saw a reversal of the run-up in consumer prices for apparel," said Niemira. "And sluggish demand caused apparel retailers to increase their discounting."

The parent company of Victoria's Secret,L Brands (LTD), turned in a 1% comp gain in September on top of a tough 6% comparison last year. Analysts had expected a 2% increase.

Like many mall retailers, L Brands was forced to be more promotional amid sluggish traffic and soft economic growth, Perkins says.

Costco Wholesale (COST), which reported Wednesday, saw a 3% gain in September comps, missing estimates for 3.4% growth. While Costco routinely turned in positive surprises from 2010 to 2012, this marked the fifth miss in nine months so far this year for the giant retailer, says Perkins. Factoring out foreign exchange, Costco's core comp gain in September was 5%, which was above views for a 4.5% increase.

Walgreen, which reported the month's comps last week, saw a 7% increase vs. a year earlier. But the nation's largest drugstore chain faced an easy comparison of an 11% decline for the month in 2012, Perkins says.

Niemira, who tracks 12 retailers, says it's hard to say a lot on the September data as a whole because "increasingly it's getting so fragmented."

Month-to-month results may be company-specific, he adds.

He cites the lofty result from Walgreen this month as an example.

Regional discounterStein Mart (SMRT) saw a strong September performance. It reported a 5% pop in the month's comps, ahead of views for a 3.2% increase.

Looking to the third-quarter tally, the strongest performing retail segments are expected to be home and building supply retailers, luxury and auto retailers, says Perkins.

In the home improvement sector,Home Depot (HD) andLowe's (LOW) are expected to have a strong third-quarter showing -- with a mid-single-digit increase in comps -- but not as strong as their second-quarter results, says Perkins.Restoration Hardware (RH) is also forecast to see a very strong third-quarter comp performance in the 20% range, as is high-end fashion houseMichael Kors Holdings (KORS), Perkins says.

The jury is still out on the holiday season. Among the factors affecting holiday gift-buying is the "crowding out effect" strong auto and home goods sales -- like furniture and appliances -- are having on mall-based retailers, says Perkins.

It's "a factor that was not in play last year," he said. "The fall fashion cycle has been somewhat ho-hum relative to last year's burst of color."

If the government shutdown persists for any prolonged period and there's any sort of default, it would "clearly have an adverse effect" on spending for the holiday, he adds.

As to the impact of government spending issues on the holiday, Niemira says: "We can move beyond it quickly if it's over next week. If they come to a conclusion I suspect it has very limited impact."

The question, he says, "is how much do these problems spin out of control -- do we default and what does that mean to the financial climate and consumer confidence? I don't think we'll get there, but it's a clear risk."

Niemira forecasts a "moderate" gain in GAFO (general merchandise, apparel and accessories, furniture and other) sales for November-December of 3.4%. That would be a "tad" stronger than last year's 3% increase, he says.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas

Referenced Stocks: BKE , GPS , RAD , WAG , ZUMZ

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