Byline: Jennifer Weitzman / Evan Clark

NEW YORK — The terrorist attacks had a “profound” impact on September sales, according to retail executives and industry analysts, but retailers, reporting just one month after the tragedy on Thursday, managed to do slightly better than a lot of worst-case scenarios.
The aggressive promotional environment prevalent at the end of September helped soften declines in comparable-store sales, but could threaten quarterly and yearly profits. The attacks dealt a severe blow to the already shaky retail and apparel industry last month, as consumers further held off purchasing discretionary fall fashions and luxury items from the department and specialty stores and instead shifted to more value-priced basics from the discounters.
“For the overall industry, the impact is profound,” said Steven Kernkraut, retail and apparel analysts with Bear Stearns. “Retailers have a ton of excess fall inventory that they must get rid of, which will lead to a healthy dose of markdowns and promotions. If you are a retailer, you are probably looking to the fourth quarter and 2002 much more conservatively, and tone down order flows between 4 and 8 percent.”
The industry had already been on edge as consumers curtailed spending due to a weakening economy and a troubled labor market. The attacks only worsened the situation as consumers stayed home for the two weeks following the Sept. 11 assaults, only to be persuaded back by the deep discounts in a month usually marked by full-price selling.
Last month, the gap widened even further between discounters on one hand and department and apparel specialty chains on the other. Healthy gains were posted by Wal-Mart (6.7 percent), Kohl’s (4 percent) and Target’s discount stores (1.3 percent); while double-digit declines emanated from Gap (17 percent), Federated (12.9 percent), May Co. (10.9 percent), Neiman Marcus (19.5 percent), Ann Taylor (13.9 percent), The Limited (10 percent) and Abercrombie & Fitch (18 percent). A number of other specialty retailers chimed in with modest increases for September, including Chico’s FAS (1.1 percent), Christopher & Banks (5 percent), Deb Shops (4.7 percent), Wet Seal (3.2 percent) and Hot Topic (0.6 percent). Talbots, although down 8.3 percent for the month, continues to expect an increase in earnings for the quarter.
“Things were dreadful for a lot of retailers the two weeks following the Sept. 11 events,” Kernkraut said. “What seems to be the good news is how sales progressed as the month went out, as consumers tried to get back to a sense of normalcy.” The shortfalls for many retailers, he noted, were “far smaller” than expected.
However, the weak sales caused a number of retailers — Pacific Sunwear, Ann Taylor, May Co., Gap and TJX Cos. — to warn of lower-than-anticipated profits. Federated, Neiman Marcus and Tiffany had already done so.
The Goldman Sachs September Comparable-Store Sales Index showed zero sales growth last month, even with a potent 4.4 percent increase from the discount stores. Specialty stores took the biggest hit, as comps fell 8.5 percent, followed by department stores, which were down 6.4 percent. However, all three segments were slightly better than GS had expected.
Richard Jaffe, with UBS Warburg, said: “The Street is relieved the numbers were not as bad as they could have been,” adding that he estimated the direct impact of Sept. 11 on retail stores is a loss of about 5 percent of monthly sales.
With travel and car purchases down and more money in consumers’ pockets because of tax rebate checks and a decline in energy prices, Jaffe said holiday could benefit as consumers are more apt to give gifts as an expression of their intensified emotions following the attacks.
Gap’s 17 percent decline in September comps included Gap and Old Navy both turning in high-teen comp declines, while Banana Republic’s were in the low-double-digit range. Heidi Kunz, chief financial officer, noted that — given the weak results last month and continuing margin and comp pressure — Gap “currently expects earnings in the quarter to be negative, before considering the tax-related charges. September results significantly missed our expectations, primarily because of Gap and Old Navy. About half of our total sales shortfall came in week two of the month, following the tragic events of Sept. 11.” The company separately announced that it expects to record a tax charge of $140 million to $150 million in the third quarter due to the probable settlements of foreign and domestic tax audits. Kunz also said square-footage growth is now likely to fall in the 5 to 7 percent range rather than its previous target of 10 percent growth.
With comps down 13.9 percent, Ann Taylor Stores forecast lower third-quarter earnings of 42 to 46 cents per share, below Wall Street estimates of 53 to 81 cents, due to the expected sales shortfall.
Revenues at Federated’s two Manhattan flagships — Macy’s Herald Square and Bloomingdale’s 59th Street — improved some later in the month, but they “significantly trailed” overall results, said the company, which had a 12.9 percent decline in comps for the month. Federated is looking for October comps to be 7 to 10 percent below a year ago and is still evaluating the impact of reduced sales on earnings. May Co., which saw same-store sales recede 10.9 percent, reported it wouldn’t meet Wall Street’s projections of 23 cents a share for the third quarter.
Comps dropped 6.7 percent for Sears, Roebuck & Co., which expects to post third-quarter earnings of 80 cents a share, excluding special items, up from 76 cents last year. While chief executive officer Alan Lacy said sales were “significantly affected by the tragic events,” he noted that profits were strong as the “heightened focus on margins more than offset revenue declines.”
Saks Inc.’s comps slumped 11.5 percent, with a smaller 1.7 percent dip in its department stores and a 23.5 percent plunge at the Saks Fifth Avenue business. Comps at Dillard’s Inc. retrenched to 8 percent below a year ago.
While not totally immune, discounters proved to be well positioned to weather the depressed retail conditions in September. While Wal-Mart and Target had increases, Kmart came up flat for the month. Off-price retailers prospered, with Ross Stores up 4 percent, TJX ahead 2 percent and Family Dollar 6.7 percent ahead. However, TJX lowered its third-quarter profit estimates to 54 cents a share versus 56 cents a year ago.

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