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Market Volatility Drags Down Misses’ Retailers

Dow Jones Industrial Average finished Tuesday?s session down 161.52 points.

Congress may be facing the possibility of gridlock on the government’s plan to bail out America’s financial institutions, but the roads around the nation’s malls could see very light traffic come holiday.

That disturbing combination proved costly for global stock markets on Tuesday, with retail shares again hit hard.

The Dow Jones Industrial Average finished Tuesday’s session at 10,854.17, down 161.52 points or 1.5 percent. The Standard & Poor’s Retail Index tracked down at about the same rate, dropping 5.35 points, or 1.4 percent, to 365.78.

Regarding holiday retailing, BIGresearch, in conjunction with the National Retail Federation, issued sobering findings from a survey of 8,000 Americans conducted Sept. 2 to 9, prior to Wall Street’s meltdown last week, reporting that a majority of respondents — 52 percent — expect to spend less on holiday gifts this year than they did in 2007. Only 6 percent expect to spend more, while 42 percent expect to spend the same.

Those figures were based on the 79 percent who’ve made holiday shopping plans. The remaining 21 percent indicated it was still too early for them to project their intentions.

On Monday, the NRF said it expects holiday 2008 sales will rise 2.2 percent this year to $470.4 billion, well below the 10-year average of 4.4 percent and the slowest growth since 2002, when holiday sales rose 1.3 percent.

“Current financial pressures and a lack of confidence in the economy will force shoppers to be very conservative with their holiday spending,” said NRF chief economist Rosalind Wells.

Speaking to the NRF’s soft holiday outlook, Phil Rist, vice president of strategy at BIGresearch, said Tuesday that, “Consumers feel they are getting hit from all sides.”

He cited fluctuating gasoline prices, home foreclosures, tightening credit for consumers and businesses, the uncertainty about who is going to run the country and job insecurity as influencing consumer spending.

Scott Krugman, NRF spokesman, said home furnishings and gift cards could be “challenged” categories. He called gift cards “a little bit of a risk category” because they’re full price and not discounted like most merchandise will be. That’s a big shift from the last few seasons.

Earlier this week, Archstone Consulting LLC said it expects gift card sales to fall 5 percent to $25 billion this holiday season “as consumers continue to manage the challenges of higher gas prices, higher food prices and a sluggish economy,” according to Dave Sievers, principal of Archstone and lead of its consumer products and retail practice.

NRF’s Krugman was bullish on electronics, where there’s “a lot of excitement in terms of new product and prices coming down. It’s a key driver for Black Friday promotions.” He also said e-commerce is a “tremendous bright spot even though we are seeing weakness in general merchandising.”

But analysts were relatively downbeat about the apparel, and missy retailers bore the brunt of their pessimism.

Caché Inc. saw its shares tumble $2.38, or 25.1 percent, to land at $7.12 after the firm revised its third-quarter earnings downward based on a tough homecoming season and was downgraded to “hold” from “buy” by both Sterne, Agee & Leach Inc. and Roth Capital Partners LLC. Along the way, Caché shares hit a new 52-week low of $6.63.

Sterne, Agee analyst Margaret Whitfield similarly downgraded Christopher & Banks in advance of the release of the release of its second-quarter results on Thursday, while Piper Jaffray analyst Neely Tamminga downgraded Chico’s FAS Inc. and The Talbots Inc. to “neutral” from “buy.”

Chico’s as a result was off 14.9 percent to $5.92 and Talbots was down 10 percent to $13.74. Christopher & Banks was off 6.3 percent to $9.66. Most teen retailers sustained less contraction, although Pacific Sunwear of California Inc. weathered a 10.7 percent decline to $6.73.

Caché early Tuesday lowered its third-quarter earnings guidance to a loss of 12 to 14 cents a share from previous guidance of a profit of 1 to 2 cents. Same-store sales are now expected to decline 4 percent and revenues to come in at $58 million, down from between $62 million and $64 million previously projected.

“Our business became particularly challenging in the second week of September, as we experienced a softening in special occasion dresses, which typically strengthen in mid-September through mid-October coinciding with the homecoming season,” said Thomas Reinckens, chairman and chief executive officer. “We were also negatively impacted by temporary store closures due to hurricanes in some of our largest markets.”

Sportswear business trends well, he added, but same-store sales for September are expected to decline about 6 percent.

“Mall traffic is not good,” commented Sterne Agee’s Whitfield. “Caché is getting a good amount of business from core shoppers but not walk-in business, which is important to them. They’re doing all the right things — a lot of value-priced accessories, bulking up their sweater business, limited the high-end merchandise that didn’t do well last year — and the product in the store looks terrific, but they’re just not getting the traffic.”

The challenge isn’t just limited to Caché, or even to mall-based retailers, she added. “I get research, which tells me that off-mall has been worse than mall traffic for six weeks now, and the third category I see, apparel and footwear stores, has been the worst.”

Meanwhile, in Washington, legislators continued to voice their dissatisfaction with the legislation that would give expansive powers to the Treasury Department to purchase distressed mortgages, marking one of the largest interventions by the government in decades.

Fed chairman Ben Bernanke warned Congress that inaction could lead to business failures tied to unavailable credit for expansions, a lack of new jobs and a constriction in consumer spending associated with tightening credit.

Democratic leaders, meanwhile, sought to tamp down discord within their own caucus.

House Majority Leader Steny Hoyer acknowledged the complaints by his rank-and-file members at a press briefing, but he said leaders still expected to pass the package in the House by Thursday or Friday.