Sales slide deepens at department stores

NEW YORK (Reuters) - Department stores posted steep monthly sales declines and some slashed forecasts as their merchandise proved even more vulnerable to consumers focused only on essential purchases in a financial crisis.

Many chains have responded to dismal sales by tightening inventories, closing underperforming stores or dropping unprofitable lines of merchandise.

Some announced new measures to combat the downturn on Thursday, such as reducing inventory and increasing promotions, helping department store shares amid a wider retail sector slide on the worst monthly sales data in 35 years.

"Those retailers that are able to really communicate a plan for how they're going to manage expenses, inventory and cash are going to be able to weather the storm," said David Bassuk, managing director of retail at AlixPartners.

Luxury department stores fared the worst in October, as even wealthy customers searched sales racks for bargains.

Mid-range department stores did not perform much better, as shoppers set even tighter household budgets due to job uncertainty, falling home values and stripped-down pension portfolios.

Upscale retailers Saks (SKS.N) and Nordstrom (JWN.N) posted double-digit declines in October sales for stores open at least a year, disappointing already grim expectations.

Saks' comparable store sales sank 16.6 percent, far worse than forecasts for a 11.8 percent drop, according to Thomson Reuters data.

Saks, who this week announced it is closing its Club Libby Lu stores catering to young girls, called the current sales environment "extremely challenging." It expects poor sales and a significant decrease in its gross margin rate through the rest of the year.

Nordstrom's same-store sales fell 15.7 percent in the month and cut its third-quarter earnings forecast to slightly below its previous view of 32 cents to 37 cents.

Saks shares fell 0.2 percent while Nordstrom slipped 0.6 percent. Shares of mid-priced department stores J.C. Penney (JCP.N) fell 0.5 percent, Kohl's (KSS.N) shares lost 0.9 percent and Macy's (M.N) shed nearly 5 percent.

The wider Standard & Poor's Retail Index .RLX fell 5 percent.

PENNEY LOWERS FORECAST

Kohl's same-store sales fell 9 percent in October, below expectations of a 6.4 percent decline. Department store operator Macy's, parent of Macy's and Bloomingdale's chains, reported a 6.3 percent drop.

J.C. Penney's October sales fell 13 percent, beating analyst expectations of a 13.2 percent slide.

But Penney lowered its third-quarter earnings forecast to a range of 53 cents to 55 cents per share from a previous range of 50 cents to 60 cents per share. Analysts expected a third-quarter profit of 54 cents per share, according to Reuters Estimates.

Penney also forecast November comparable store sales to be down in the low double-digits and said its third-quarter inventory will be down 9 percent on a comparable basis from last year, despite adding 35 new stores since last year. It expects its inventory levels to continue to trend downward.

Kohl's said it still expects earnings to be at the low end of its previously announced forecast of 51 cents to 56 cents per share. Analysts expected 51 cents per share.

"J.C. Penney and Kohl's putting up negative, but largely anticipated (comparable sales), but not really adjusting in any meaningful way earnings for the third quarter, probably explains the outperformance today," said Piper Jaffray retail analyst Jeff Klinefelter.

Macy's reiterated a previous forecast of a same-store sales drop of 3 percent to 6 percent in its fall season, which it defines as the period from August to January and includes the critical holiday shopping season.

Macy's said it expects its fourth-quarter same-store sales to be down 1 percent to 6 percent, and November comparable-store sales to fall in the low-double digits, partly due to a calendar shift that moves a week of sales into the December period.

(Additional reporting by Nicole Maestri)