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Soft chain-store sales presage gloomy holiday season

by Meaghan M. Norman
Oct 08, 2008

The holiday season is expected to be slow for some retailers while others could see measurable profits.

Lower-than-expected sales for J.C. Penney Corp. forced the company to clip its earnings estimate and look toward better days even though many economists say that won’t be any time soon.

Retail sales “will continue to be weak because we are facing a global recession,” said Asha Bangalore, economist at Northern Trust Corp.

J.C. Penney reported Wednesday that in the five-week period ended Oct. 4 the company’s comparable-store sales fell 12.4 percent from the same period last year. Officials expect third quarter sales to decrease by low double digits. The comparable-store sales are sales of stores that have been open for a year or more.

J.C. Penney downgraded its estimate for the third quarter to between 50 cents and 60 cents per diluted share from 70 to 75 cents per diluted share.

Target Corp.'s comparable-store sales dropped 3 percent and the company said it may miss analysts' third-quarter estimate of 52 cents per diluted share.

Falling sales are seen as a harbinger of a slow holiday season. Adolfo Laurenti, analyst for Mesirow Financial Holdings Inc., said the soft jobs picture is partly to blame for decreased sales.

“Unemployment is going up, which means there are less people with jobs which means there is less money available,” he said.  “People are more cautious, people drive less, eating out less. It’s a whole readjustment when the size of the pie shrinks, every slice gets smaller.”

Chris Dorsey, 20, from the South Side, plainly stated, “Everybody needs money, but nobody has it.”

However, still bucking the trend, Wal-Mart Stores Inc. posted a rise in September sales of 2.4 percent, though that missed analysts' estimate of 2.5 percent.

Carol Levenson, analyst for Gimme Credit LLC, said Wal-Mart’s low prices have attracted consumers during this credit crunch and even though its sales may stumble, the business is expected to thrive.

“Like any retailer, Wal-Mart’s sales will be affected by consumer spending, but its enormous scale and breadth as well as its enviable financial strength will keep it rolling along even in environments when others falter,” Levenson stated.

Also on the bright side, Deerfield-based drug store chain Walgreen Co. recently posted a 9.8 percent sales increase to $59 billion in the fiscal year ended Aug. 31.

Walgreen spokesman Michael Polzin said the company will use promotions but expects the company’s growth to continue through the holiday season.

“We are going to be very smart with our promotional activity,” he said, “We expect this to be a decent holiday season for us. People don’t give up on Christmas. They may buy some less expensive gifts and trade down, but we offer more value for customers.”

J.C. Penney stock closed at $27.25, down $1.31, but Wal-Mart lost only 6 cents to $54.75. Walgreen closed at $26.18, down 56 cents.