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By all indications, 1998 has been a good year for home furnishings retailers.

Comparable-store sales, often cited as the most credible measure of a retailer's health, have outpaced last year's numbers in most months. What's more, earnings have been up for the vast majority of merchants, and the retail sector has been one of the strongest for stocks.

But as the critical fourth quarter begins, there are signs that the party has ended. Consumer confidence in September declined for the third straight month, posting its lowest mark since January (See story, page 6).

The decline in the consumer confidence survey is important to retailers because consumers who are concerned about the economy may delay or withhold purchases.

Salomon SmithBarney analyst Richard Church wrote in his September sales update that while opinions vary on the decline of the index, "of greater concern is the risk that this is the beginning of a turn in the consumer spending cycle."

In the days following the consumer confidence survey, retail stocks including Wal-Mart, Home Depot and J.C. Penney plummeted. Penney and Dillard's, in fact, hit 52-week lows last week. Penney, Sears, Kmart and Restoration Hardware were among a slew of retailers whose status was downgraded by Wall Street analysts last week, as fears of a consumer spending slowdown intensify.

Retail stocks had a strong year until weakness in the broader market and concerns about a possible recession hit the sector, analysts said, noting that many investors are just taking profits where they can.

Adding to concerns, a survey released last week of chief executives found that the majority of CEOs expect the pattern of slow growth to continue well into 1999. "It's true that the data on sales, profits and wages look good compared to our last survey," said Barry Rogstad, president of the American Business Conference, an association that represents fast-growing medium-sized firms. "But looks are deceiving."

Rogstad said the third quarter survey indicated a sharp slowdown. "Today's number for the fourth quarter shows that while a further downshift is not likely, from a growth perspective the economy will stay in a low gear," Rogstad said.

The survey asked CEOs to compare their expectations for their companies in the fourth quarter with third quarter results. "A net 34 percent of CEOs foresee greater sales over third-quarter levels, which is up from the 26 percent who expected greater sales over the third quarter compared with second-quarter levels."
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Author:Ryan, Ken
Publication:HFN The Weekly Newspaper for the Home Furnishing Network
Date:Oct 5, 1998

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