NEW YORK (CNN/Money) -
Wall Street more or less expected disappointing sales results from retailers Thursday.
What they may not have expected was the extent of the damage and the number of profit warnings on the third and even fourth quarters.
Economic jitters, the potential for war with Iraq and a slumping market have been pinching chain store sales for the last three months. But the 10-day lockout of dockworkers at West Coast ports may have finished setting the table for a disappointing holiday season.
Of the 42 retailers monitored by earnings tracker First Call, 11 have so far issued negative guidance on the third quarter.
And analysts are already slashing their fourth-quarter outlook. Current Wall Street expectations call for a 15.5 percent increase in fourth-quarter profit, down from a 20.1 percent increase forecast at the beginning of July, according to First Call.
Though the ports were reopened Wednesday on President Bush's intervention, the delay could prevent merchants from getting all their holiday merchandise onto the shelves in time for Black Friday, the day after Thanksgiving, considered the traditional start of the holiday shopping season and one of the biggest shopping days of the year.
"What's happening is very simple. The numbers we saw today are clear evidence that the American public is shell-shocked to the point of being frightened over a big long list of circumstances surrounding the economy over which they have no power, no control," said Kurt Barnard, president of Barnard's Retail Consulting Group.
Others have said they have enough to start the holidays, but may come up short on the hottest gift items.
That's critical because the two-month holiday season accounts for at least 50 percent of most retailers' sales and profits for the entire year.
"We knew today was going to be a disaster. What surprises us was how bad it was was," Bill Dreher, a retail analyst at W.R. Hambrecht said.
Dreher said his firm was reviewing its third and fourth quarter estimates on Kohl's (KSS: Research, Estimates), Target Corp. (TGT: Research, Estimates) and B.J.'s Wholesale Club Inc. (BJ: Research, Estimates) with a downward bias.
The port lockout situation is likely to leave many retailers short of supply by Thanksgiving and possibly overloaded by December, when merchandise starts rolling into the stores again, Dreher said. And that could force many into early discounts and clearance sales, hurting margins and profits.
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Overall, retailers' September sales at stores open at least a year, a key gauge known as same-store sales, rose an anemic 1.5 percent from the year earlier period, according to a survey of 79 nationwide chains by the Bank of Tokyo-Mitsubishi. That's even worse than the 1.8 percent increase in August.
And the damage was widespread.
Wal-Mart (WMT: Research, Estimates), the world's biggest retailer, reported a modest 3.3 percent same-store sales increase, well below the 6.3 percent gain it posted a year ago.
Meanwhile, moderate-priced department store chain Kohl's Corp. stunned Wall Street with a 3.2 percent decrease in its September same-store sales. That's the first time since 1995 that the Menomonee Falls, Wis. chain has reported a negative sales number, according to analysts. Kohl's has been so successful these last few years that many competitors are redesigning their own stores based roughly on Kohl's layout.
And The Children's Place (PLCE: Research, Estimates) apparel chain saw its September same-store sales plunge a whopping 30 percent from a year ago.
Even more disturbing to analysts, Federated Department Stores (FD: Research, Estimates), operator of Macy's and Bloomingdale's, cut third and fourth quarter forecasts, and the third quarter has barely ended.
Troubled Gap Inc (GPS: Research, Estimates)., the nation's biggest apparel chain, did not warn, but said the West Coast port lockout could shave 2-7 cents a share off fourth quarter results.
AnnTaylor (ANN: Research, Estimates) said it is still evaluating the impact of the port lockout, but that it could hurt fourth-quarter profits, especially if it has to take on the extra expense of shipping inventory by air freight.
And Talbots Inc. (TLB: Research, Estimates) said it would be prudent to expect lower full-year results than a year ago.
It's not that Americans aren't spending money. Consumers, whose spending makes up two-thirds of the U.S. economy, have single-handedly kept the country from sliding back into another recession, even as business spending stays soggy.
But economic worries have them spending more carefully, opting for homes and automobiles, attracted by low interest rates and zero-percent financing deals. September's sales numbers without question show people are spending less at the stores, but it remains to be seen whether they will stay that way come November.
As one toy industry executive said this week, people are not going let their children do without at Christmas.
The National Retail Federation, the world's biggest retail trade group, is predicting a 4 percent increase in holiday season sales from a year ago. Spokesman Scott Krugman said Thursday he sees no reason to change that forecast, but the group is closely monitoring the situation.
"I think it remains to be seen how things go over the next month," Krugman said. "The forecast is always open to revision depending on a set of circumstances we might not have seen. That could mean the effects from the lockout, or it could mean what happens if we got to war with Iraq."
"What we're dealing with right now is a cautious consumer and cautious business spending," he added.
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