BEHIND THE NEWS: If sales fall short, retailers will have explanations aplenty

November 21, 2005

Here's the good news for Indianabased retailers: Even if the crucial holiday shopping season doesn't go well, they'll have plenty of excuses for the lackluster performance.

High gas prices kept shoppers at home. High heating prices ate up their disposable income. And any extremes on the weather front could prove handy, too. Who wants to buy sweaters when it's 60 degrees outside, or venture to the mall on ice-slickened roads?

Indeed, it's not all spin. Take the Indianapolis-based electronics and appliance retailer H.H. Gregg, whose Midwestern stores were walloped by a Dec. 22 snowstorm last year that shuttered several locations. The setback took the glow off financial results, contributing to a 2.7-percent quarterly decline in same-store sales.

Nationally, retailers have reason to feel relatively upbeat going into this holiday season, based on the results of consumer surveys. The New York-based market research firm NDP Group, for instance, projects a "surprisingly bright" season "despite all the obvious pressures." It projects consumers will spend an average of $681 on holiday shopping in 2005, compared with $655 a year ago.

Executives at Indianapolis-based Simon Property Group Inc., the nation's biggest mall operator, share the bullish outlook.

"Everyone is anticipating a positive Christmas, and frankly I don't think there has ever been a Christmas where retail sales have not been higher than the year before, including after 9/11," Simon Chief Financial Officer Stephen Sterrett said during an Oct. 28 conference call with analysts. "So this is a pretty resilient consumer economy, and I think we are going to continue to see that."

In public comments, retail executives are walking a thin line, sounding upbeat without building expectations unreasonably high.

"We're cautiously optimistic," Kevin Wampler, chief financial officer of Indianapolis-based Finish Line Inc., told IBJ last week, no doubt echoing the remarks of countless other U.S. retail execs.

Finish Line already had gone a long way toward scaling back expectations. After the company in August reported sales in its fiscal second quarter fell short of analysts' estimates, it projected flat same-store sales for its third and fourth fiscal quarters.

Analysts say athletic shoe manufacturers have not released a must-have product that would drive sales higher. The company also has been hurt by a consumer shift away from high-performance sneakers toward other casual shoes.

Adding to the challenge, Finish Line was on a tear a year ago, reporting a 9-percent increase in same-store sales in December and an 8-percent increase for the quarter encompassing Christmas.

"We have to go against that, and obviously we have economic conditions out there we have to assume will have some impact on consumers, as gas prices and heating costs are going to be up," Wampler said. "Our assumption is it is going to take some disposable income out of the consumer's pocket."

The sales picture for Gregg may be a little fuzzy as well. On the one hand, consumers are flocking to buy pricey flatscreen TVs, market research firm NPD said. On the other, electronics retailers lack a breakout product, as they had last year with the iPod. Gregg President Dennis May could not be reached for comment.

One thing's for sure: If retailers are disappointed this year, they won't put out press releases accepting blame for poor merchandising or other blunders.

Perhaps they'll pick one of the explanations at the top of this column. Or maybe they'll cite job insecurity among auto workers, or even the hurricanes of late summer and early fall.

The storms initially did cause consumers to scale back holiday spending plans, according to the Ohio-based market research firm Retail Forward. But outside the areas directly affected, the impact was temporary.

Brightpoint rings up big returns

Brightpoint Inc. recently reported a 26-percent increase in revenue in the third quarter, triggering another surge in the company's stock. Shares of the Plainfield-based wireless-phone wholesaler now are up 85 percent for the year, making Brightpoint the top-performing Indiana stock for 2005.

Revenue for the quarter was $545 million. Investors seem unfazed by the $6.2 million loss the company reported, which stemmed from one-time costs related to ceasing operations in France.

Brightpoint shares last week were trading at $24.10. They've been climbing steadily for 19 months. Since April 2004, the shares have appreciated more than 120 percent.
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