Let the price wars begin

Retail chains post sluggish October sales, with Wal-Mart seeing weak November too. Analysts say price cuts coming.

By Parija B. Kavilanz, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- Major retailers reported mostly weak sales gains for last month, a sign that the recent retreat in gas prices didn't really help buoy consumer spending in October.

"I'm not a believer that gas prices sway consumer spending," said Marshal Cohen, chief retail analyst with market research firm NPD Group. "But yes, when I hear that my house today costs less than it did last year, that will impact my spending."

Analysts expect sales at big retailers rose about 3.4 percent last month on average, excluding new stores, well below the 4.3 percent gain in the same month a year ago, according to Thomson Financial.

Of the 57 retailers that already reported monthly sales Thursday, about 57 percent missed sales estimates while 35 percent beat expectations, the firm said.

Industry watchers expect the weak sales numbers probably spooked merchants enough to ignite a pricing war, especially over the next two months.

"I expect retailers will do whatever they have to to quickly turn thing around," said Cohen.

The holiday shopping months of November and December are crucial for retailers, together fueling 50 percent or more of sales and profits for many chains.

The National Retail Federation (NRF), the industry's largest trade group, expects holiday sales this year will increase 5 percent, slower than last year's 6.1 percent gain.

A struggle for Wal-Mart

Wal-Mart (Charts), the world's largest retailer, said same-store sales - or sales at its stores open at least a year - rose a much weaker-than-expected 0.5 percent.

The anemic increase was even lower than Wal-Mart's recently reduced guidance for a 1 percent gain. It initially expected sales to rise 2 to 4 percent.

The outlook was even worse, with Wal-Mart forecasting flat "comparable-store" sales for this month.

Rival discounter Target (Charts) posted a 3.9 percent gain in same-store sales, below analysts' forecast for a 4.2 percent increase.

Bernard Sands retail analyst Richard Hastings wrote in a report Thursday that retailers were up against some strong results from a year ago.

At Costco, (Charts) for example, U.S. comparable sales were up 10 percent last October. But sales at the warehouse club operator rose just 4 percent last month, weaker than the 4.7 percent increase Wall Street had expected.

"Typically we see a two-year subcycle, with a couple of strong year-over-year increases and then some statistical backlash," Hastings wrote. "We should see some of this in [today's numbers] while keeping our eyes on big ticket and non-apparel sales trends."

In the specialty arena, No. 1 apparel seller Gap Inc. (Charts) logged a 7 percent dip in October same-store sales. The miss was wider than the 2.4 percent decline analysts had estimated.

Women's apparel retailer Chico's FAS (Charts) reported a 4.1 percent drop in same-store sales. CEO Scott Edmonds said the company was "disappointed" with the result.

Consequently, Chico's cut its third-quarter earnings forecast to a range that's below current average forecasts on Wall Street, according to First Call.

Sales at home furnishing seller Pier 1 Imports (Charts) tumbled 13.7 percent last month.

Get ready for the holiday price wars

"Retailers will be even more competitive and promotional and throw caution to the wind. Retailers will now go after volume and not profits," NPD's Cohen said. "Because of this, we'll probably see a recovery and strong sales numbers through December."

October wasn't a dismal month for everyone, however. High-end merchant Nordstrom (Charts) proved once again that its merchandise and service pleases customers. The department store chain posted a strong 10.7 percent gain in same-store sales last month.

Elsewhere, sales at stores open at least a year jumped 8.1 percent at J.C. Penney (Charts), indicating strong demand for seasonal clothing and accessories.

In the teen fashion space, American Eagle Outfitters (Charts) reported sales rose 8 percent for the month.

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