us retail sales continue slowdown

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    New Year Brings Same Slow Retail Sales
    Monday January 13, 10:31 am ET
    By Emily Kaiser

    CHICAGO (Reuters) - Major U.S. retailers started the new year about the same way they ended the old one, with Wal-Mart Stores Inc. (NYSE:WMT - News) and others on Monday reporting tepid sales at or below expectations so far in January.

    Analysts expect no quick fix for the retail sector this year, coming off a disappointing holiday sales season that showed the smallest sales gain in more than 30 years.

    The sector is likely to underperform the broader market, analysts said, hamstrung by a sluggish economy, the nagging threat of war with Iraq, price deflation and a general lack of must-have new products.

    Wal-Mart, the world's biggest retailer, said its sales at stores open at least a year, or same-store sales, so far were meeting its January expectations for a 2 percent to 4 percent gain. That's a far cry from the 8.3 percent same-store sales growth it reported in January 2002.

    The retailer said customers were buying mainly basics such as underwear and pet supplies, and its inventory was slightly higher than it would like.

    J.C. Penney Co. Inc. (NYSE:JCP - News) had the opposite problem, saying its January sales were suffering because it had little inventory left to discount after a stronger-than-expected holiday sales period, which was powered by aggressive advertising and markdowns.

    The retailer said same-store sales at department stores were below its expectations for a flat to slightly higher monthly performance. Last year, its January same-store sales rose 5.9 percent.

    J.C. Penney's December same-store sales jumped 4.7 percent, making it one of the few large retailers to beat its holiday sales forecast.

    Federated Department Stores Inc. (NYSE:FD - News), the parent of Macy's and Bloomingdale's, said it expected January same-store sales to be down 4 percent to 5 percent from a year ago. Last year, its January same-store sales dropped 8.8 percent.


    Retail stocks have outperformed the broader market in the last two years, but that run looks set to end in 2003, J.P. Morgan retail analyst Shari Eberts said.

    Eberts, who lowered her rating on upscale retailer Saks Inc. (NYSE:SKS - News) to "underweight" on Monday because the stock looked pricey, said same-store sales across the sector would likely languish this year.

    "We see no easy fixes on the horizon in 2003," she said. "While consumer spending is likely to remain at today's average rate of growth, structural issues like overcapacity, a lack of product newness and deflation should prevent attractive margins and returns for all but the best retailers."

    Many retailers managed to sustain earnings in 2002 by keeping inventories tight, which helped boost gross margins despite sluggish sales growth. Eberts said those margin improvements will be harder to come by this year.

    To make matters worse, price deflation is likely to weigh on same-store sales. As retailers find cheaper manufacturers, selling prices come down, meaning stores have to sell more items just to keep same-store sales flat.

    For example, a DVD player that cost $200 last year may cost just $100 this year, so the store would have to sell two to match last year's dollar sales total.

    "Deflation is likely to continue in 2003, keeping sales dollars under pressure even if unit sales are healthy," J.P. Morgan's Eberts said.

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