Is the Long-Awaited Consumer Slowdown Beginning? Part II – The Retailers Are Turning Bearish

Some retailers are expecting a weak holiday season. This dovetails with a post put up about a week ago on a similar subject. Text in bold is my emphasis. From Market Watch:

Following Wal-Mart and Macy's, J.C. Penney on Thursday became the latest retailer to warn that housing, gas prices and credit woes will dent 2007 holiday sales and stifle discretionary spending in 2008.

"We're in a very difficult selling environment," J.C. Penney CEO Myron Ullman told analysts Thursday in a conference call to discuss the company's third-quarter results. Ullman said he expects a weakening sales environment to continue into 2008.

"We came out of September expecting a strong start for early fall. That didn't happen. This is the first time that we're seeing a real change in consumer sentiment," Ullman said.

He blamed weak housing conditions, mortgage and credit market concerns, and what he called the "psychological effect of fuel prices" for eroding Penney's profit and sales last quarter.

More importantly, the retailer warned on its full fiscal-year profit, saying that it expects crucial fourth-quarter same-store sales, which measures sales at retail stores open at least a year, to decline at a low single digit percentage.

The fourth quarter typically accounts for more than half of merchants' annual profit and sales.
Earlier this week, Home Depot and Wal-Mart both signaled their concern about a spending slowdown in the months ahead and into 2008. Penney's rival Macy’s cut its fourth-quarter same-store sales estimate Wednesday.

"The outlook expressed by Penney and earlier by Wal-Mart and Macy's signals that consumer spending is slowing relative to the beginning of the year," said Wayne Hood, analyst with BMO Capital Markets.

Based on these weak holiday sales forecast and more to come, Hood said he's "almost written off the holiday season."

"The holiday shopping season will be over in three weeks. I'm more concerned about what the guidance from retailers for next year," he said.

"Most retailers will have a very guarded outlook for 2008. I expect conservative sales and inventory guidance for next year. If retailers cut back on spending on IT (information technology) projects, cut travel budgets and tightly control their discretionary budgets, then that could have a direct impact on the economy," Hood said.

To his point, Ullman said Penney was planning very conservatively on expenses for next year. "We won't be aggressive on spending in discretionary projects," he said.

Ullman said Penney's mall-based stores were particularly impacted by a steep drop in traffic during the quarter.

Ullman said having great merchandise and prices wouldn't matter if consumers curtailed their spending in the months ahead. Besides economic factors, Ullman said unseasonable warm weather hurt cold-weather apparel sales in the third quarter.