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Retailers have soggy May
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June 6, 2001: 1:27 p.m. ET
Wet, cool weather dampened chain store sales in May; 2Q profits under pressure
By Staff Writer John Chartier
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NEW YORK (CNNfn) - Retailers are set to report lower sales for May Thursday as cool, rainy weather and the sluggish economy hurt sales of spring and summer merchandise, a trend that could hurt profits if it continues through the second quarter.
Analysts expect most U.S. chains to report sales at stores open at least a year, a key gauge known as same-store sales, were generally weaker in May than in the previous month. Unseasonable weather dampened consumers' motivation to buy swimsuits, patio furniture, and tank tops, as did worries about layoffs and high energy prices.
"With this kind of weather, we've now had this for some days, I think you'll find retail sales will reflect a cautious attitude on the part of consumers," said Kurt Barnard, president of Barnard's Retail Trend Report in Upper Montclair, N.J.
Several big chains declined to comment on May sales or the outlook for retail, but on its pre-recorded weekly sales announcement, Kmart Corp. (KM: down $0.02 to $10.83, Research, Estimates) said sales for the third week of May were "below plan." But the company attributed most of that to an ongoing turnaround program.
Discount chains such as Troy, Mich.-based Kmart, the fourth-largest U.S. retailer, and Wal-Mart Stores Inc. (WMT: down $0.17 to $51.13, Research, Estimates), the world's biggest retailer, have headed lower, but fared better than most as penny-pinched consumers shop for bargains.
Sears, Roebuck & Co. (S: up $0.01 to $40.38, Research, Estimates), the nation's No. 2 retailer, said in its weekly sales announcement that its May sales matched company expectations for a low single-digit increase. That's about flat compared with the 1.3 percent same-store sales gain it posted in April.
Merrill Lynch specialty retail analyst Mark Friedman said in a note Monday he expects a 1-to-3 percent decline in May same-store sales compared with a 3 percent increase a year earlier, mainly because of the cooler weather.
Though the second quarter is typically a quiet one for retailers, Friedman said May is important because it represents a higher percentage of full-price selling. But he warned that if sales do not pick up in June, retailers will be forced to offer markdowns which likely will hurt earnings.
"What is impacting the consumer is the cooler weather in several key regions, the increasing energy costs which take cash flow from the mall to the tank and a lack of exciting new fashion," Friedman said in the research note. "We would also point out that a flattish market performance and news of layoffs are probably in the back of consumers' minds and causing a tightening of purse strings."
Retailers' profits have taken on added significance in recent times as they offer insight into consumer behavior and confidence, a key economic gauge used by the Federal Reserve and Chairman Alan Greenspan in considering interest rate cuts to stave off a recession. Consumer spending is also important since it accounts for two-thirds of the economy.
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The Fed has so far lowered interest rates five times this year in hopes of encouraging companies to increase capital spending and spurring consumers to spend more at the stores.
But the latest report on U.S. productivity Tuesday showed the largest decline in eight years, sparking fears that the slowdown may not soon be over.
Consumers, though they have cut back on spending, have not dropped out totally, but the Fed will be watching consumer behavior closely in the coming weeks leading up to its next meeting on June 26. 
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Kmart
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