Gas prices, housing market hurt retail sales

updated 12:24 p.m. ET May 10, 2007

NEW YORK - The outlook for consumer spending in the coming months grew dimmer Thursday after big retailers stumbled in April, their sales hurt by rising gasoline prices and the weak housing market.

As retailers released their monthly sales figures Thursday, weak performers cut through all segments of the industry and included Wal-Mart Stores Inc., which recorded a rare drop in business, as well as Abercrombie & Fitch Co. and Federated Department Stores Inc.

“Consumers are feeling pressured by higher gasoline prices and a sluggish housing market, particularly low and middle income consumers,” said Ken Perkins, president of RetailMetrics LLC, a research company in Swampscott, Mass.

Analysts had already expected last month to be weak after an early Easter motivated many consumers to do their holiday shopping in March, siphoning away part of April’s business. But sales were much softer than expected, raising concerns that retailers will also see disappointing results in the months ahead.

The UBS-International Council of Shopping Centers sales tally posted a decline of 2.3 percent, the biggest drop since the index started tracking the data. The tally is based on same-store sales or sales at stores open at least a year, which are considered a key indicator of retailers’ health. For the combined March and April months — which provides the best read on the spring selling season, the tally was up a modest 1.8 percent, below the 2.8 percent forecast.

While analysts will be closely watching how May fares since the month will provide a better indication of the health of the consumer, concerns are rising that shoppers can no longer bear the weight of the economy’s woes.

“The slowdown is at hand,” said Michael P. Niemira, chief economist at the International Council of Shopping Centers.

Wal-Mart reported a 3.5 percent decline in same-store sales. Analysts surveyed by Thomson Financial had expected a 1.1 percent decrease.

Wal-Mart warned last month it expected same-store sales in April to be anywhere from unchanged to down 2 percent, but business was much weaker because of disappointing apparel and home goods sales at its Wal-Mart discount chain. Same-store sales at the discount stores were down 4.6 percent, while at the Sam’s Club warehouse club division, same-store sales rose 2.5 percent.

The last time Wal-Mart reported a drop in same-store sales was last November, when the retailer posted a 0.1 percent decrease.

Wal-Mart said the slowing economy was a big factor in its sluggish performance. It noted that recent surveys of discount store shoppers show that consumers are increasingly concerned about rising gas prices, which are now averaging over $3 a gallon nationwide.

Wal-Mart also blamed its performance on cold weather and the earlier Easter. It also said product recalls by dog and cat food manufacturers contributed to a slowdown in pet supply sales during April.

The world’s largest retailer said it expects May same-store sales to rise 1 percent to 2 percent.

Target Corp. suffered a 6.1 percent decline in same-store sales, in line with the 6.2 percent estimate. Target blamed the drop-off on a sales shortfall during the first two weeks of the month, and an earlier Easter holiday.

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