October Beat September, But Sector Is Still Soft

October was better than September when it came to retail sales, but the sector is still showing softness, thanks to warmer weather, increasing fuel prices and tighter consumer credit.

According to Thompson Financial, which tracks the sales of 43 retailers, same-store sales were up only 1.6%--below analysts' expectations of 2%. The number skews higher than September's index growth of 1.4%, but is well below the 3% growth shown in October 2006.

"Weather explains only a small part of the continued weakness," says Frank Badillo, senior economist with TNS Retail Forward--a Columbus, Ohio-based company that maintains its own 50-retailer index (which showed composite gains of 1.7%)--in a note. "Fuel prices, tighter credit and growing job worries are the bigger drags on retail spending, particularly for lower-income shoppers."

According to Thomson Financial, which tracks 43 of the country's retailers, 27 of them (or 64% of the index) missed their estimates. At Wal-Mart, the world's largest retailer, comparable same-store sales in the U.S. increased 0.4%, well below analysts' expectations of 1.1%. Total company sales, which include international markets, were up 8.4%, to $27.9 billion. According to the company, pharmaceutical and grocery sales were strong in the U.S., but seasonal categories tied to cold weather--such as apparel, home and hardlines--were soft.



The company projected comparable same-store sales for November to be between flat and 2% up.

At Wal-Mart competitor Target Corp., monthly same-store sales increased 4.1%, above analysts' expectations of 2.5%. Target total sales were up 9.7%, to $4.4 billion, for the month. End-of-month Halloween timing led the gains. However, company CEO Bob Ulrich said sales in the higher-margin category were soft.

Warehouse store Costco Wholesale Corp. said increased comparable sales were up 9% overall. Some of that gain reflected increased gas prices, which are up 25% over last year, according to the company.

Macy's reported a same-store sales decline of 1.5% for October, which was in line with previous guidance of sales to be down between 1% and 2%. Total sales were down 0.5%, to $1.85 billion. At the Gap, comparable store sales were down 8% over the same period last year.

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