RETAIL SALES PREDICTIONS SHOW WEAK OUTLOOK, PRICE CONSCIOUS CONSUMERS FLOCKING TO DISCOUNTERS

U.S. retailers probably saw sales decline again in September, signaling weak demand leading into the holiday season that will require chains to sharpen their focus on value.

This year's later Labor Day holiday was expected to push a good chunk of sales from August into September. But consumers' concerns about the economy, especially rising unemployment, weighed on spending.

Analysts are calling for an average decline of 1 percent in sales at stores open at least a year, according to Thomson Reuters data. Such a decline would be the smallest monthly drop since September 2008, when same-store sales fell 0.9 percent. (here)

Major retailers, including Wal-Mart Stores Inc, Kroger Co and Best Buy Co Inc, do not issue monthly sales reports, but results from the chains that do can give investors a sign of how the overall market is faring.

For more than a year, value has been the key proposition for shoppers, and that is unlikely to change soon.

"Anywhere that people feel like they're getting a perceived bargain, that's where people are going to be attracted right now," said Steve Ferrara, a partner in BDO Seidman's retail and consumer product practice in Chicago.

Discounters TJX Cos Inc and Ross Stores are among the few retailers expected to post increases. Analysts expect high-end stores such as Saks Inc and Nordstrom to report deeper declines than chains with more of a value message, such as Kohl's Corp and JC Penney Co Inc.

"People are just pulling back in general," said Patricia Edwards, founder and chief investment officer at Storehouse Partners.

The trend may even deepen this year as more Americans suffer from job losses and dried-up credit limits.

"If last year was a socks-and-underwear Christmas, I think this year is going to be even tougher," Edwards said.

The National Retail Federation said on Tuesday that it expected U.S. holiday retail sales to fall 1 percent this year, on top of last year's 3.4 percent decline.

Retail stocks have rallied sharply since early March, outpacing the growth in the overall market, as investors bet that a consumer shopping revival could be just around the corner. But in September those hopes cooled a bit and the Standard & Poor's Retail index rose 3.6 percent, in line with the Standard & Poor's 500 index.

On Tuesday morning, the S&P retail index was up 2 percent, compared with a rise of 1.8 percent in the S&P 500.

BACK-TO-SCHOOL MAY NOT MEAN BACK TO SPENDING

Labor Day, the U.S. holiday which falls on the first Monday in September, landed on September 7 in 2009 after falling on September 1 in 2008. That shift meant several more pre-Labor Day selling days, including the entire holiday weekend, are in the September sales reporting month this year.

"The retailers were hoping that with everything being pushed back, September would be better," BDO Seidman's Ferrara said.

But in the same month, unemployment hit a 26-year high of 9.8 percent, making September same-store sales difficult to predict.

"I think flat would be, like, awesome," Ferrara said. "Everyone's expecting September to be down a little bit, and I also think they're expecting the holiday season to be down a little bit."

Same-store sales at teen and children's apparel retailers are likely to fall 6.3 percent, on top of last year's 4.7 percent decline, according to Thomson Reuters.

Once again, analysts expect Abercrombie & Fitch Co to post the steepest drop of any retailer, at 19.9 percent. In August, its same-store sales plunged 29 percent.

Still, there are bright spots in children's wear. Aeropostale Inc and Gymboree Corp are likely to raise their quarterly earnings forecasts on the heels of September results, as both appeared to do well with back-to-school shoppers and kept an eye on margins, said FBR Capital Markets analyst Adrienne Tennant.

Apparel retailers overall are expected to show flat sales. Analysts expect declines of 1 percent for discount retailers and 4.6 percent for department stores.

"There's certainly still going to be those people who will shop at Nordstrom and people who will shop at Macy's," said Edwards of Storehouse Partners, "but I just don't think that the dollars are going to flow there the way they have in the past."

Among department stores, she praised Kohl's strong balance sheet, store openings and ability to bring in good merchandise and make a decent margin on it in the midst of discounting.

Edwards, who did an informal survey of holiday spending, said thrift appeared to be in.

"Everyone was really downplaying what they were doing for the holiday season," she said. "I think it's not going to be considered so gauche, as it used to be, that not everything comes in a box from Macy's, or Tiffany, or something like that."