Retailers mind the weather
With war, terror fears already weighing on consumer confidence, a winter storm piles on the grief.
February 18, 2003: 10:18 AM EST

NEW YORK (CNN/Money) - As if U.S. retailers didn't have enough headaches, with fears about terror attacks and the possibility of war in Iraq already keeping sales sluggish, lousy winter weather in much of the country kept shoppers at home through the weekend.

Last week, consumers were made nervous when the Department of Homeland Security raised the national terrorism alert level to orange, or "high." At the department's urging, consumers rushed out to stock up on emergency supplies, including duct tape and plastic sheeting, which were supposed to help protect homes in the event of a biological or chemical attack.

Wal-Mart Stores Inc. (WMT: Research, Estimates), the world's biggest retailer, said Monday that pantry items helped drive sales in the latest week, Reuters reported, as consumers stocked up on canned food, batteries and water on fears of terror attacks.

Not surprisingly, lingerie sales also helped Wal-Mart's sales in the week ended Feb. 14, Valentine's Day, the report said.

Then the weekend brought a severe winter storm that swept across the northeastern United States, shutting down business. In advance of the storm, consumers ran out to stock up on more emergency supplies, which gave some retailers a lift, but that was of little help to department stores such as Federated Department Stores Inc. (FD: Research, Estimates) and J.C. Penney Co. Inc. (JCP: Research, Estimates), who said Monday that bad weather hurt weekend sales.

Still, sales at Federated, parent company of Macy's and Bloomingdale's department stores, met the company's targets, while sales at Penney were slightly above plan in the first two weeks of February.

On its recorded weekly sales update, Wal-Mart said it expects February sales at its U.S. stores open at least a year -- or same-store sales, a closely watched measure of retail performance -- to rise 2 percent to 4 percent. That's well below a 10.3 percent pace a year ago.

The company said its Wal-Mart discount stores are expected to show a 3 percent to 5 percent gain in same-store sales, outperforming the Sam's Club warehouse unit.

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CNNfn's Allan Chernoff takes a look at the blizzard of 2003 and its impact on the retail industry.

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Penney said it expects February same-store sales to be flat, compared with a 12.5 percent jump a year ago.

Federated said it hopes to get back on track by the end of the month and meet its expectations of a drop of 4 percent-to-5 percent in February same-store sales, compared with a 2.8 percent drop a year ago.

Shari Eberts, retail analyst with J.P. Morgan, said Federated's forecast appeared "realistic," noting that many other retailers gave outlooks she considered too ambitious.

"Despite the soft January and holiday season, many broad-line retailers are planning February aggressively, which could keep sales momentum and the stocks under pressure," Eberts said in a research note.

Shares of Federated gained $1.28 Friday to close at $25.26, shares of Wal-Mart gained $1.51 to close at $49.15, and J.C. Penney shares gained 95 cents to $18.72.

War fears weighing on sales

Consumer spending, which fuels more than two-thirds of the total U.S. economy, has flattened in recent months, as concerns about a possible war in Iraq, lingering weakness in the labor and stock markets and other woes have weighed heavily on consumer confidence.

Frank Badillo, senior economist with Retail Forward, said the U.S. economy is showing early signs of recovering from a recession led by the technology sector bust, but is just entering a consumer-led recession which could stick around for months.

"We're at the point where the technology bust has bottomed out," he said. "What's going to weigh down the economy now is the consumer, which may be going through its own recession."

A war in Iraq could exacerbate the slowdown.

"When you look back to (the last Iraq war in) 1991, when the shooting started it definitely caused a weak period to become even weaker," Badillo said.

"Once the tide turned very quickly in favor of the U.S., there was a big bounce-back in consumer confidence, but it turned out to be very fleeting because the underlying fundamentals weren't strong enough to carry a rebound," he observed.

This time around, Badillo said the underlying fundamentals appear to be stronger, but the consumer slowdown is also more pronounced.

"If things go well and these (war) issues resolve by midyear, there's a chance for a modest rebound developing in the second half of the year," he said.  Top of page

-- from staff and wire reports

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