December 2, 2008 / 5:42 AM / in 11 years

Bargain-hunters fail to save retail sales

CHICAGO (Reuters) - Bargain-hunting holiday shoppers did not save U.S. retail sales in November, which will likely represent a second straight month of declines for the industry.

A store offers sale items to shoppers at Fair Oaks shopping mall in Fair Oaks, Virginia November 29, 2008. REUTERS/Larry Downing

Sales during last week’s Black Friday, the traditional kickoff of the holiday shopping season, were better than many analysts expected. But the growth likely came at the expense of margins as stores cut prices aggressively.

That means investors will look not only for December sales forecasts when retailers report November sales this week, but also for comments on margins and earnings.

“They are just going to have to suck it up and take a hit on the margin side this season,” said Ken Perkins, president of Retail Metrics.

Perkins has forecast a 1.7 percent decline in November sales at stores open at least a year. But with the job market continuing to weaken, retailers that succeed will have to continue to offer the best discounts.

“It seems like everything is about price point right now. If you weren’t on sale, you’re probably not selling right now,” Perkins said.

Analysts on average expect a 2.5 percent decline in November same-store sales, according to Thomson Reuters data. That would be the biggest drop since Thomson Reuters began collecting same-store sales data in 2000.

Excluding Wal-Mart Stores Inc, which has been the big winner as shoppers look to save money, the decline is 7.1 percent.

Thomson Reuters said on November 6 its October same-store sales index fell 0.7 percent, worse than its estimate for a 0.3 percent drop.

A DUD NOVEMBER

For most of November, consumers cut spending sharply as access to credit tightened, home values fell and costs remained high for essentials like food.

“The remainder of the month was largely a dud as the credit crunch continues to stifle consumer spending,” Oppenheimer analyst Robert Samuels said in a research note.

The timing of the U.S. Thanksgiving holiday, which fell later in the month this year, also hurt sales, analysts said. Mild weather cut into sales of winter apparel.

“Even in normal circumstances, the loss of a week of post-Thanksgiving sales would have resulted in a weak November,” Brean Murray, Carret & Co analyst Eric Beder said in a research note.

“When the current economic malaise and slightly warmer weather are added to the mix, the potential for any positive results becomes remote.”

But Beder also said that investor expectations for retailers have reached a low, giving the sector a chance to bounce back in December. The Standard & Poor’s retail index is down about 20 percent since the end of October.

Among retailers, Wal-Mart’s steady focus on offering low prices will keep it ahead of rivals, analysts said. The world’s largest retailer had been aggressively promoting toys and food in the weeks leading up to Black Friday.

Analysts on average forecast a 2 percent increase in same-store sales for the discounter, one of the few retailers expected to show a rise in November, according to Thomson Reuters.

Rival Target Corp is expected to post a 9.1 percent decline. Target had forecast a decline of 6 percent to 9 percent, with half the decline due to the later Thanksgiving.

Overall, department stores like Kohl’s and J.C. Penney are expected to post an overall 14.5 percent decline. Apparel retailers’ same-store sales are expected to drop 11.6 percent and teen and children’s apparel is forecast to fall 12.3 percent.

Additional reporting by Martinne Geller and Nicole Maestri, editing by Matthew Lewis

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