Retailers scale back sales expectations for this year

07/23/2014 2:54 PM

07/26/2014 12:37 PM

A projected strong second half of 2014 won’t be enough to offset the hit retailers took from harsh winter weather, the National Retail Federation said Wednesday, lowering its earlier sales forecasts for the year.

The retailers’ group now forecasts sales growth of 3.6 percent for all of this year, down from the 4.1 percent envisioned in January.

“We thought the economy would improve,” said Jack Kleinhenz, the federation’s chief economist.

Harsh winter weather across much of the nation is to blame for what, after two revisions, is now a 2.9 percent contraction of the U.S. economy from January through March. The Commerce Department will release its first estimate of second-quarter growth next Wednesday, and most mainstream economists think the growth from April through June will be about 3 percent.

It means the two quarters effectively cancel each other out, and over the year so far the economy will have stumbled along, again below expectations.

The better news, Kleinhenz said in a call with reporters to announce the revised forecast, is that the remaining five months of the year are expected to see a pickup in retail and economic activity.

By the federation’s estimate, retail sales for the first half of 2014 grew at a rate of 2.9 percent, slowed by the harsh winter. Sales are expected to pick up from July through December, to around 3.9 percent. The numbers include general retail sales and non-store sales, including Internet sales, but they exclude the sales of automobiles, gasoline and food at restaurants.

“The challenge is we’re in this low-growth environment,” added Matthew Shay, the president and CEO of the federation. “People aren’t feeling the recovery; consumers aren’t feeling confident.”

He added, “It is getting tiresome to not be getting out of first gear.”

The federation’s forecast is in line with the latest retail sales data out of the Census Bureau. It reported July 15 that sales in June rose 4.3 percent from the previous month, reflecting a speed-up. But sales had increased only 0.2 percent from June 2013, and sales for the month and the year continue to fall short of analysts’ expectations.

One consequence of the soft 2014 sales is that retailers are likely to get more aggressive. In the final months of the year, consumers can expect advertising and sales to begin earlier for the back-to-school period and the year-end holidays.

“It’s definitely starting earlier,” said Bill Thorne, a senior vice president at the federation, noting that back-to-school ads are already running on television channels aimed at children and families. “It’s going to be a good back-to-school year. It’s not going to be a great back-to-school year.”

That’s partly because consumers are still reticent to open their wallets.

“People are timid in terms of using credit cards,” Kleinhenz added, and since consumption accounts for about three-fourths of U.S. economic activity it all points to subdued growth. “It raises issues of how fast this economy can grow.”

Many large retailers don’t report their second-quarter earnings until August, but the scene was already set in the first quarter. In a conference call with investment analysts in May, Target interim CEO John Mulligan set the bar fairly low.

“For the full year, we continue to expect U.S. comparable sales in a range of flat to up 2 percent,” he said.

Analysts at several Wall Street firms also cautioned earlier this month that the ubiquitous Wal-Mart chain may fall short of consensus expectations when it reports second-quarter earnings.

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