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Shopping Drops at Retail Stores as Gloom Spreads

Economy: Industry stalwarts such as Sears and Wal-Mart, along with Anaheim's Pacific Sunwear, warn Wall Street of disappointing earnings for first quarter.


A sinking stock market and rounds of pink slips scared consumers away from stores in March, retailers said Thursday, making it the slowest month in an already sluggish year. The numbers also triggered a number of sellers to lower first-quarter profit expectations.

Sears, Roebuck & Co., Federated Department Stores Inc., teen clothier Pacific Sunwear of California Inc. in Anaheim and even industry giant Wal-Mart Stores Inc. each warned Wall Street that earnings were likely to disappoint.

"We were expecting a very weak March, but it turned out to be one of the weakest months in 25 years of tracking this," said Kurt Barnard, president of Barnard's Weekly Retail Marketing Report. "It was really a very, very poor performance on the part of most retailers."

The Commerce Department reported a retail sales decline of 0.2% for March, which was below analysts' expectations.

Top performers used to bucking downward momentum joined their more economically sensitive peers in reporting sales below or at the low end of expectations.

Talbots Inc., usually among the strongest retailers, reported same-store sales down 8.1% over the same period last year. Department-store chain Kohl's Corp., long a Wall Street darling, posted a 1.9% decline in same-store sales.

Saks Inc., parent of Saks Fifth Avenue stores, reported March same-store sales down 6.9% as compared with March of last year. Bloomingdale's and Macy's parent Federated was down 3.2% as opposed to the 1% to 3% loss predicted by analysts at Goldman, Sachs & Co. Dillard's Inc. saw sales fall a whopping 13% over the same period last year, and Neiman Marcus Group Inc. reported a 4.7% decline compared with last year.

"Department stores really just about caved in," Barnard said.

Same-store sales are considered an important measure of a company's ongoing performance because the figure excludes new and closed stores.

In all, Bank of Tokyo-Mitsubishi said, the tally in March reflects sales declines at more than half of the chain stores that make up the bank's retail sales index. BTM said its chain-store index gained just 1.7% over last March for stores open at least a year.

Goldman Sachs' retail composite index gauged sales as essentially flat with the same period last year, at 0.7%.

In addition to a weaker economy, retailers hoping to sell spring apparel faced the problem of a nasty blast of weather, especially in the Midwest and on the East Coast. The cold snap also bit into sales of outdoor merchandise, said Richard Nelson, an analyst with Stephens Inc.

"Same-store sales in March matched the weather," said Steve Paspal, an analyst at John Hancock Funds in Boston.

Investors were likewise gloomy about many of the retailers. Shares in Talbots dropped $3.70 to close at $37 on the New York Stock Exchange.

Gap Inc., with sales down 8% instead of the 2% to 4% drop some analysts expected, saw shares fall 29 cents to $23.49. Shares in Dillard's fell $4.07 to $16.98. Shares in Wal-Mart, which reported same-store sales up 3.5% over the same period a year ago, fell 53 cents to $49.70. All trade on the Big Board.

Pacific Sunwear reported same-store sales down 4.1% and saw shares fall $1.93 to $23.77 on Nasdaq. On Thursday, the company also announced the resignation of Michael Scandiffio, its executive vice president of merchandising.

But Jennifer Black, an analyst with Wells Fargo Van Kasper, reiterated her strong buy rating on the stock in a report released Thursday.

"We hope to see a turnaround in June and July as the company clears through the remainder of its pants and begins to receive the new pants assortments," the report said. "We believe that August could be potentially explosive as kids hit the stores for back-to-school attire, and we believe that this momentum will continue into the holiday season."

Wet Seal Inc., another teen clothing seller, reported essentially flat sales in March, with a 0.8% gain. Shares of the Foothill Ranch-based chain fell $2.20 to close at $23.80 on Nasdaq.

Investors' opinions weren't entirely negative.

Sears shares gained 10 cents to close at $34.75 and Kohl's rose $1 to $53.80, both on the NYSE.

Richard Church, a retail analyst at Salomon Smith Barney, called March a "one-month aberration," saying that warmer weather and Easter sales were likely to boost sales in April. Salomon put its retail sales index at 1.3% ahead of last year in stores open at least a year.

John Hancock's Paspal also said he anticipates an April rebound as long as temperatures continue to climb.

March also proved to be a good month for a few retailers. J.C. Penney Co. reported a 2.7% sales gain--its best since April 2000. May Department Stores Inc. also outperformed both expectations and its peers, with sales up 5.2%. Shares in Penney rose $1.33 to close at $17.76 on the NYSE. Although Limited Inc. reported sales that were off by 4%, the company's Express stores gained 5% in same-store sales, ahead of a predicted 1% rise.

Home stores also gained, with Bank of Tokyo-Mitsubishi measuring a 2.5% gain for furniture stores and a 7% gain for electronics sellers.

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