Retailers Fear a Red Christmas

 | Oct 25, 2013 | 3:00 PM EDT
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It's beginning to look a lot like Christmas -- if not everywhere you go, then at least in the guidance for fourth-quarter revenue and earnings from retail companies.

So far, the forecast is for a mediocre holiday shopping season. But Wall Street is wondering if, in light of this fall's government shutdown and a downbeat reading on consumer confidence, even mediocre might be optimistic.

The trickle of worry started with disappointing guidance from eBay (EBAY). On Oct. 16, the company told Wall Street to expect fourth-quarter revenue in a range of $4.5 billion to $4.6 billion. That was a bit below the $4.64 billion in sales that the Street was projecting for the quarter.

That in itself wouldn't have been good for the stock, but what sent up warning flags for the consumer sector as a whole was the commentary from eBay Chief Financial Officer Bob Swan on the conference call. "In a relatively short period of time [that is, since the second quarter], we've seen a pretty rapid deceleration in the market," Swan said on the call. That raised the possibility that conditions for the fourth quarter were deteriorating faster than the company had projected. 

Second, worry has come in forecasts for holiday hiring of seasonal help from some of the country's big retailers. Wal-Mart (WMT) has said that it will hire about 10% more seasonal workers than last year. Other retailers, such as Kohl's (KSS), are projecting that their seasonal hiring will be flat. Considering that companies tend to be more optimistic about quarters early and then get more realistic or pessimistic as the quarter actually unfolds, this isn't the best of signs.

Third, in its guidance for the fourth quarter, (AMZN) didn't raise any warning flags, but neither did it toot any horns about the quarter. On Oct. 24, Amazon told analysts to expect fourth-quarter sales of $23.5 billion to $26.5 billion. The top of that range is barely above the Wall Street consensus forecast of $25.9 billion.

Sounds like a mediocre quarter.

And fourth, today, Oct. 25, the Thomson Reuters/University of Michigan final consumer sentiment index reported a decline for October to 73.2, the lowest since last December, from 77.5 the prior month. Economists surveyed by Bloomberg were looking for a drop to 75 in the survey. Granted that this survey is backward-looking and tells us more about what consumers felt while the government shutdown was in progress than what they will feel and how they will behave in November and December, the drop is still a worrying sign.

No wonder Wall Street isn't so much dreaming of a white Christmas and is more worried that the shopping season will be colored red.

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