Consumer Spending Outlook Turns Hazy

Thursday, April 12th 2007, 10:51 am

By: News On 6

NEW YORK (AP) _ The outlook for consumer spending turned hazy Thursday as warnings of weak sales ahead overshadowed better-than-expected March sales at many of the nation's big retailers.

Analysts said rising gasoline prices and the possibility of higher interest rates could lead shoppers to curtail their spending in the coming months. And Wal-Mart Stores Inc., whose customers cut back on shopping when gas prices were high last year, warned that April's selling environment will be tough, while Federated Department Stores Inc. said its first-quarter sales will come in at the low end of expectations.

``We definitely have our concerns going forward,'' said Ken Perkins, president of RetailMetrics LLC, a research company in Swampscott, Mass. He noted that a big issue will be how much deeper the housing market will slump.

The arrival of warmer weather following an unusually cold January and February helped retailers like Wal-Mart recover from a slow start to the spring selling season. An early Easter, which occurred eight days earlier than a year ago, also helped, though it will depress April's results. Other winners for March included Costco Wholesale Corp., J.C. Penney Co. Inc. and teen retailer Pacific Sunwear of California Inc.

Even Gap Inc., which has been mired in a sales slump, reported better-than-expected results .

The International Council of Shopping Centers-UBS same-store sales tally of 53 stores posted a 5.9 percent gain, exceeding estimates for 4 percent to 5 percent. Same-store sales, or sales at stores open at least a year, are the industry standard for measuring a retailer's health. Michael P. Niemira, chief economist at ICSC, said the improving weather and earlier Easter boosted March results by 3 percentage points.

But those temporary factors that helped March results are expected to hurt April's figures by that same amount, according to Niemira. The weather has turned cooler in recent days, stifling sales of spring clothing. Bill Kirk, CEO of Weather Trends International, a weather consultancy for retailers, forecast that it will be the coldest April in 24 years.

A bigger worry is the slowing economy, particularly the weakening housing market, that could challenge shoppers in the coming months. An immediate concern is rising gas prices _ gas and oil climbed Wednesday and Thursday after the government reported a steeper-than-expected decline in gasoline inventories, and there are predictions of $3-a-gallon gasoline by summer.

Meanwhile, minutes from the Federal Reserve's most recent meeting showed the central bank is not ruling out an interest rate hike to contain inflation. Higher rates mean consumers will be paying more on their credit card balances, and they can further hurt the already weak housing market.

One of the big pillars for consumer spending has been the solid job market. The Labor Department reported earlier this month that employers added 180,000 jobs in March; the unemployment rate slipped to 4.4 percent, matching a five-year low. But that could weaken if the housing market continues to slump, Perkins said.

The latest report from the Labor Department about unemployment benefits was not encouraging. The government reported Thursday that the number of Americans filing new claims for unemployment benefits rose last week to the highest level in two months. Applications for jobless benefits totaled 342,000 last week, up 19,000 from the previous week. However, the jobless claims figure is expected to show some volatility.

Wal-Mart posted a 4 percent gain in same-store sales, above the 1.6 percent estimate from Wall Street analysts surveyed by Thomson Financial.

Tom Schoewe, Wal-Mart's chief financial officer, noted that the company has estimated first-quarter earnings of 68 to 71 cents per share. But, he warned in a statement, ``while the earnings guidance is still attainable, given the tough sales environment for the April period, it will be a challenge.''

For April, Wal-Mart said it expects same-store sales to be anywhere from unchanged to a 2 percent decline.

Federated Department Stores Inc. posted a modest same-store sales increase of 2.3 percent,below the 3.3 percent estimate from Wall Street.

``March sales fell just short of our expectations in most regions across the country, largely attributable to weakness in home-related merchandise categories,'' said Terry J. Lundgren, Federated's chairman, president and CEO, in a statement. ``Unseasonably cold weather as new spring merchandise flowed into the stores in the pre-Easter period also contributed to disappointing sales in the month.''

Federated expects that sales in the first quarter to be at the low end of its forecast of $6 billion to $6.1 billion.

Women's clothing retailer Bebe Stores Inc. posted a 0.1 percent increase in same-store sales, below the 2.6 percent estimate from Wall Street. It also issued a warning, saying earnings may fall short of its outlook for the first-quarter.

Among stronger performers, Costco had a 6 percent gain in same-store sales, beating the 4.7 percent estimate. Penney had a 10.6 percent gain in same-store sales in its department store business, above the 7.5 percent Wall Street forecast.

Saks Inc. had a robust 10.1 percent gain in same-store sales, though it was below the 13.0 estimate.

Nordstrom Inc.'s same-store sales rose 15 percent, well above the 8.2 perent estimate.

Limited Brands Inc., which operates Victoria's Secret and Express, said same-store sales rose 8 percent, above the 6.7 percent projection.

Gap, whose troubles resulted in the departure of its CEO in January, reported same-store sales rose 6 percent, easily beating Wall Street expectations for a 1.1 percent decline.

Pacific Sunwear had a 14.1 percent gain in same-store sales, well exceeding the 3.4 percent estimate.

On Wednesday, Target Corp. reported same-store sales rose 12 percent, beating the Wall Street estimate for a 11.5 percent gain. American Eagle Outfitters Inc. reported on Wednesday a robust 20 percent same-store sales increase, exceeding the 11.1 percent estimate.