Retailers Cool Holiday Hopes
Ho, ho, ho is looking like it might be slow, slow, slow.
Levi Strauss & Co. said Thursday that its revenue this year would be lower than expected, partly because slow October sales spooked retailers into buying less for the holidays.
The San Francisco-based apparel maker’s announcement that its 2003 sales would be as much as 7% below last year was one of several signs Thursday that the Christmas season may not be as merry as many economists had predicted.
Discount giants Wal-Mart Stores Inc. and Target Corp. said fourth-quarter earnings could fall short of Wall Street estimates as retailers face tough competition this Christmas.
And executives at Kohl’s Corp., which reported lower quarterly profit amid slow sales and weak apparel demand, said they were cautious heading into the crucial shopping season and have begun marking down prices on sweaters and coats.
Worries about finding or keeping jobs continue to make shoppers wary of opening their wallets too wide, analysts said.
“Consumers are being extremely cautious spenders,” said Kurt Barnard, president of Barnard’s Retail Consulting Group. “They buy what they need -- people bought food at Wal-Mart,” but the world’s largest retailer has been having harder time selling “soft goods” such as apparel, he said.
Analysts noted that it shouldn’t take much for this year’s holiday numbers to look good because they will be measured against last year’s disappointing results, when sales rose only 0.5%.
“That’s what’s somewhat uncomfortable,” said Michael Niemira, senior economist for Bank of Tokyo-Mitsubishi. Merchants “aren’t sensing that there is any kind of fundamental improvement.”
The outlook seemed brighter in September, when shoppers bought briskly during the back-to-school period -- giving retailers their strongest sales gain in 18 months. That prompted some economists and analysts to predict a long-awaited revival for the suffering retail sector.
When sales increases slowed in October, many retailers blamed warm weather, not consumer cautiousness, for quelling demand for winter clothing.
Levi Strauss, however, said the poor October showing made retailers reluctant to build up inventories. The company previously forecast that sales for its fiscal year ending Nov. 30 would be roughly even with 2002 revenue of $4.14 billion.
Compounding the problem, prices for jeans and casual pants have continued to decline, forcing the maker of Levi’s jeans and Dockers slacks to lower wholesale prices to stay competitive, the company said.
Levi said it expected operating margins for the year of 7% to 8% instead of 8% to 10% as previously forecast. Year-end debt is expected to be $2.1 billion to $2.2 billion, up from previous guidance of $2.1 billion. Levi is closely held, but its debt is publicly traded.
The news caused three big credit-rating firms to issue warnings about the company’s prospects. Moody’s Investors Service and Fitch Ratings cut their ratings on several issues of Levi debt; Standard & Poor’s put the company on its CreditWatch list, saying it found the timing of Thursday’s announcement “especially troublesome.”
“We are concerned they still haven’t proven that they have figured out what they need to do to grow sales longer term,” Fitch analyst Michelle Barishaw said. “They continue to have a tough road ahead.”
Consultant Barnard said Levi’s new Signature line at Wal-Mart, introduced last summer, is not big enough to make up for the company’s steep losses at department stores, which also have suffered as a result of the tepid economy.
“Levi has not yet found the pot of gold at the end of the rainbow,” Barnard said. “In fact, they haven’t even found the rainbow.”
Wal-Mart on Thursday reported a 13.9% gain in third-quarter earnings, but that was below Wall Street expectations. Fourth-quarter profit, the company said, will surpass last year’s modest gains but could come in below analysts’ estimates.
Chief Executive H. Lee Scott Jr. said the company had not seen the strong consumer spending some on Wall Street had forecast, noting that customers have been buying the discount store’s lowest-priced merchandise.
The nation’s largest retailer earned $2 billion in the third quarter, or 46 cents a share, up from $1.8 billion, or 40 cents, a year earlier, mostly on the strength of improvements at its Sam’s Club warehouse stores. Analysts surveyed by Thompson First Call had expected 47 cents a share.
Profit at the company’s discount stores, Wal-Mart’s largest division, was hurt by markdowns in August that were needed to clear summer merchandise, the company said.
Sales at Wal-Mart rose 13.1% to $62.5 billion. Sales at stores open at least a year, a key measure of growth, gained 6.1%.
Target said Thursday that it earned $302 million, or 33 cents a share, compared with $277 million, or 30 cents, a year earlier. Sales rose 10.7% to $11.29 billion, with sales at stores open at least a year rising 4.3%.
Although its quarterly results were in line with analysts’ expectations, Target said it could miss holiday-quarter estimates because of weakness at its Mervyn’s, which has nearly half of its 264 stores in California, and Marshall Field’s department stores.
Levi’s 12.15% notes maturing in 2012 fell 11.6% on Thursday to 72.55 cents.
Wal-Mart shares fell $2.44 to $55.52; Target shares dropped 93 cents to $39; Kohl’s, which reported results after the market closed, dipped 13 cents to $50.58. They all trade on the New York Stock Exchange.
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Times staff writer Leslie Earnest contributed to this report.
