Holiday pessimism proves infectious

Apprehension regarding shoppers’ willingness to spend during the shortened holiday season has reached the point where even retailers presumably well positioned to benefit from frugality are sounding alarms.

The most recent is Ross Stores vice chairman and CEO Michael Balmuth who shared his concerns about the fourth quarter even as the operator of 1,154 stores reported third quarter sales that were in line with expectations and profits that exceeded guidance due to margin expansion.

"As we enter the fourth quarter, our merchants have acquired a wide array of exciting and sharply-priced name brand fashions and gifts to appeal to today's value-focused shoppers,” Balmuth noted. “That said, we are up against our own challenging multi-year comparisons and an upcoming holiday season that we believe will be the most intensely competitive and promotional selling period in recent years. As a result, while we hope to do better, we believe it is prudent to adopt a more cautious outlook for the fourth quarter."

As a result, Balmuth said the company is looking for fourth quarter comps to decelerate from the 2% gain in the third quarter to a range of 1% to 2%. Last year the company generated a fourth quarter comp increase of 5%. The company is also forecasting profits to decline to a range of 97 cents to $1.01 from $1.07 last year which included a 10 cent a share benefit related to an additional week.

During the third quarter, sales at Ross increased 6% to nearly $2.4 billion while profit increased to $171.6 million from $159.5 million and earnings per share advanced to 80 cents from 72 cents.

"Third quarter sales were in line with our guidance, while earnings were better-than-expected mainly due to above-plan merchandise gross margin,” Balmuth said. “Operating margin of 11.3% was relatively flat to last year. As a percent of sales, an improvement in cost of goods sold was offset by an increase in selling, general and administrative expenses."