Byline: Thomas J. Ryan

NEW YORK — Merrill Lynch said it expects this holiday season to show the worst sales since 1990 but anticipates more joyful tidings in 2001.
In its just-released Christmas forecast, Merrill expects comparable-store sales for broadline stores — department stores and discounters — to be up 2.8 percent versus a 5 percent gain last year. In 1990 during a recession, comps rose 2.6 percent.
“Retailers now face a confluence of negative factors,” said Daniel Barry, retail analyst at Merrill, pointing to the economic slowdown driven by six consecutive Federal Reserve Board interest rate hikes, a weak fashion season characterized by no ‘must-have’ items; and rising oil prices. Barry also cited the end of the mortgage refinancing “engine for spending,” the slowing of the wealth effect as the stock market remains under pressure, and tough comparisons against a strong 1999.
Turning to the bottom line, Merrill expects profits to be up only 3 percent, the worst since the 2 percent gain in the 1995 fourth quarter. Broadline comps in 1995 holiday rose 3.5 percent.
“Our analysis indicates that the sales slowdown appears to be having the most effect on the middle class,” said Barry, who conversely predicted high-end stores like Neiman Marcus, Saks Fifth Avenue and Tiffany, and dollar stores like Dollar General and 99 Cents Only Stores, to see holiday comps grow 6.1 percent.
“We continue to believe that the dollar-store sector, due to its higher growth, convenient neighborhood locations and consumables focus, is less susceptible to a sales slowdown,” said Barry. “We also believe the high-end consumer, coming off an unprecedented period of economic strength is somewhat insulated from a sharp slowdown.”
Barry noted that same-store sales at high-end chains, represented by Neiman Marcus, Saks Fifth Avenue and Tiffany, increased 11.1 percent over the last three months, more than triple the 3.5 percent gain of all broadline stores over the last three months.
“The middle market, represented by the warehouse clubs, discount stores and traditional department stores, is most at risk this Christmas,” Barry said. “These chains are also disproportionately negatively impacted by difficult comparisons against millennium-boosted 1999 Christmas comps.”
But he said that assuming wage growth remains stable and given easier comparisons, sales should “bottom” this holiday and recover to more normal historical levels in the first half of 2001.
“While we expect the weakest comps since 1995, we believe that Christmas could mark an end to the sales slowdown, which would be decidedly good for the stocks,” said Barry.