For U.S. retailers, the phrase "challenging environment" has become a shared refrain for one of the toughest quarters in decades. And merchants expect the...
NEW YORK — For U.S. retailers, the phrase “challenging environment” has become a shared refrain for one of the toughest quarters in decades. And merchants expect the climate to remain rough for the rest of the year as higher gas and food costs as well as slumping home prices weigh on shoppers.
Discount retailer Target reported Tuesday that first-quarter earnings fell 8 percent on weaker-than-expected sales, particularly of nonnecessities like lawn furniture. Meanwhile, Saks, the operator of luxury chain Saks Fifth Avenue, posted a 66 percent profit compared with first-quarter results hobbled by onetime charges a year ago, but said that heavy discounting hurt profit margins.
Shares of Target slipped 63 cents, or 1.2 percent, to $54.29, though results beat Wall Street estimates. Saks’ shares tumbled 93 cents, or 6.6 percent, to $13.20 as results missed analysts’ projections.
The weak housing market is pummeling the home-improvement chains, including The Home Depot, which reported a 66 percent drop in first-quarter profit on Tuesday. On Monday, rival Lowe’s reported a nearly 18 percent decline in first-quarter earnings and reduced its profit outlook for the year.
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Target’s President and Chief Executive Gregg Steinhafel told investors in a conference call Tuesday that the discounter is stressing sale prices more in its advertising to grab a bigger share of the $107 billion in economic-stimulus checks being distributed now to American households.
Ken Perkins, president of RetailMetrics, expects that stimulus checks won’t provide merchants with a big lift, and said he wonders where the impetus lies for a consumer-spending rebound.
“Everyone is very deal-conscious, even if you are relatively affluent,” he said.
The company said profit margins declined slightly from last year because sales grew faster in low-margin categories, which generally includes food and essentials like paper towels. And Steinhafel said shoppers are increasingly buying replacement pillows and sheets rather than a whole new set.
In its lawn and patio items, consumers are buying new seat cushions rather than all-new lawn furniture.
Saks CEO Stephen Sadove expects that the retailer’s profit margin will remain relatively unchanged compared with 2007. The company increased discounting for the period, he said.
Sadove told investors that the stores’ performance is more tied to confidence in the financial markets.
“I do believe that we’re in a rough economic period right now,” he said. “The consumer is operating as if we are in a recession, whether we’re technically in one or not.”