Posted on: Friday, March 7, 2003

Storms, war worries stifle sales

By Anne D'Innocenzio
Associated Press

NEW YORK — Winter storms dealt a major blow to February sales at the nation's retailers, where business has already suffered from the weak economy and worries about war with Iraq.

As merchants reported their February results yesterday, Wal-Mart Stores Inc. announced sales at the low end of its expectations, and apparel retailers and department stores were again the hardest hit. Consumers had no incentive to buy spring fashions such as micro-miniskirts in the frigid cold, analysts said.

But some retailers were exceptions, including Pacific Sunwear of California Inc. and Gap Inc., both of which reported that sales at stores open at least a year beat Wall Street expectations. Same-store sales are considered the best gauge of a retailer's health.

Overall, though, "this was a weak reading, and it is the same story line. But the only difference is that the weather complicated the issue," said Michael P. Niemira, vice president of Bank of Tokyo-Mitsubishi Ltd. "Weather is a passing problem, but concern about war and the economy is a lingering issue and therein lies the problem."

Bank of Tokyo-Mitsubishi's same-store sales tally of 78 stores was up only 0.8 percent in February, compared with an increase of 6.2 percent a year ago, when unusually warm weather helped spur sales of spring clothes. Niemira said it was the weakest performance since last November, when the index was unchanged.

The biggest blow in February came when a snowstorm blanketed the Northeast during the President's Day weekend, forcing many stores to close and wiping out the much-anticipated sales bonanza needed to jump-start the spring season.

Niemira estimated that the holiday storm as well as extreme cold weather and other storms in the Northeast and Midwest last month shaved about 1 to 1.5 percentage points on average from the monthly sales figures at national chains.

Sears, Roebuck and Co., which announced a disappointing 9.4 percent same-store sales decrease, said it had to close 130 stores and key distribution centers over the Presidents Day weekend, creating a "significant impact on sales."

Mixed reports

Meanwhile, the government released a mixed bag of reports yesterday.

The Labor Department reported that claims for unemployment benefits rose last week to their highest level of the year, marking the third week in a row that layoffs increased. The government reported that initial applications for unemployment insurance rose last week by a seasonally adjusted 12,000 to 430,000.

Two other reports were more positive. The Labor Department said productivity — the amount of output per hour of work — rose at an annual rate of 0.8 percent in the fourth quarter, according to revised figures. That marked an improvement from the 0.2 percent rate of decline released a month ago and was a stronger performance than analysts had expected.

A third report from the Commerce Department showed orders to U.S. factories rose 2.1 percent in January, fueled by a 14.6 percent gain in orders for automobiles.

Still, more forward-looking data on manufacturing released earlier in the week indicated that the automobile sector lost momentum in February.

Such an overall weak economic environment is stalling sales even at discount chains such as Wal-Mart, which reported a modest 2.6 percent increase in same-store sales, in line with the consensus from Thomson First Call. But that was at the low end of the company's goal of a 2 percent to 4 percent rise.

Target Corp. said same-store sales were down 1.4 percent, weaker than the 1.0 percent decrease analysts expected.

Kohl's Corp. announced disappointing results, with a 4.6 percent decrease in same-store sales.

Slow sales may continue

While some retail executives held out hope for a brighter spring, analysts remain cautious. To be sure, February is the second least important month of the year behind January on a retailer's sales calendar, and represents 25 percent of first quarter sales.

But Niemira and other analysts believe the sluggish trend will continue through this month at least, putting more pressure on retailers to make up for lost sales by discounting aggressively.

Most retailers saw shares slip in trading yesterday, with shares of Sears Roebuck falling almost 4 percent, or 70 cents, closing at $19.30 each.

Wal-Mart's shares slipped 48 cents to close at $47.40 each.

Target's stock slipped 28 cents, closing at $26.06.

Kohl's shares fell 43 cents, closing at $49.98 each.

All trade on the New York Stock Exchange.