October retail sales spooked

NEW YORK (CNNMoney.com) -- Warmer weather, combined with ongoing housing market problems and higher gas prices, eroded retail sales for a second consecutive month in October - a trend that raises questions about the strength of this year's holiday shopping season.

Thomson Financial, which compares monthly results at 43 of the nation's largest retail chains, said October same-store sales overall rose 1.6 percent, weaker than its initial forecast of a 2 percent rise. Same-store sales in October 2006 rose 3 percent.

Last month's lackluster performance follows a 1.4 percent gain in September, which was the slowest monthly same-store sales gain since August 2004.

Thomson said 64 percent of retailers missed analysts' sales estimates in October.

"The sales number are a little bit all over the place," said Ken Perkins, president of Retail Metrics, which tracks retail sales.

"The weather was definitely a negative factor, especially in early October when it was much warmer than usual and people weren't buying fall and winter clothing," he said. "But the decline in home prices, tighter credit conditions and higher gas prices are finally having an impact on retail sales too."

As disappointing as October was, Perkins said the more critical tests of consumer spending will come in November and December, which typically account for 50 percent or more of retailers' annual profits and sales.

"October is more of a transition month during which retailers move out of fall merchandise and into their holiday products," Perkins said. "November and December is the real deal from now on - and even January - because of holiday gift card redemptions in that month."

The biggest misses last month included Limited Brands (Charts, Fortune 500), parent of Victoria's Secret and the Bath & Body Works chains, which posted a 6 percent drop in sales at its stores open at least a year, which is a key measure of retail performance known as same-store sales.

Wal-Mart (Charts, Fortune 500), the world's largest retailer, reported a 0.4 percent increase in its Oct. sales, which was at the low-end of its forecast for sales to be flat to up 2 percent.

Wal-Mart said grocery and pharmacy were its best-performing categories last month, while seasonal categories related to cold weather including apparel and home showed soft sales trends.

For November, the company expects sales to be flat or up two percent.

The guidance is disappointing given Wal-Mart's aggressive holiday pricing. The retailer was the first out of the gate this year to slash prices on 15,000 products on Oct. 1 followed by another round of deep discounts later in the month.

Meanwhile, Wal-Mart's rival Target (Charts, Fortune 500) logged a 4.1 percent same-store sales gain last month, slightly better than its reduced forecast for a 2 to 4 percent increase.

"Due to strength in the last week of the month which benefited from year-over-year Halloween timing, our October comparable store sales were at the high end of the range provided in our mid-month update," Target CEO Bob Ulrich, said in a statement.

"However, for the second straight month, we experienced soft sales in our higher margin categories," Ullrich said.

Among clothing chains, Wet Seal reported a 5.4 percent decline in its sales last month, much wider than analysts' forecasts for a 2.1 percent drop. Sales at Gap Inc., the No. 1 apparel seller tumbled 8 percent

But there were some positive surprises.

Costco (Charts, Fortune 500), the No. 1 warehouse club operator, posted a 9 percent jump in its October sales, blowing past analysts' estimates for a 5.7 percent increase.

And sales at luxury chain Saks (Charts) jumped 10.9 percent, trouncing analysts' estimates for a 5.4 percent increase.