Business

Retailers' profits slide

From affluent shoppers at Saks to bargain-hunters at Target, from Home Depot to Staples, consumers are pulling back, and that's hurting retailers and raising more concerns about how they'll do the rest of the year.

The latest round of second-quarter reports show more signs of financial stress on shoppers, as Target's customers stick to necessities and have trouble making their credit card payments. Saks says it's now seeing its high-end designer consumer cut back, whereas previously it was only the everyday customers who were the ones retrenching.

And while falling gas prices in recent weeks should provide some relief to consumers, economists say that won't be enough to offset all the other economic problems out there, from a housing slump and a weakening job market to soaring food prices and tighter credit.

“It's a small positive, but you still have all the other negatives,” said Carl Steidtmann, chief economist at Deloitte Research. He predicted that retailers are facing tough back-to-school and holiday seasons.

Investors weren't pleased with the latest reports, either, sending retail stocks down along with the broader market. Home Depot's shares fell more than 2 percent, while Staples' dropped more than 5 percent and Saks' stock tumbled more than 10 percent.

The increasing frugality is challenging even Target's forte in cheap chic. The discounter, whose performance has been lagging behind Wal-Mart, reported a 7.6 percent drop in profit as its customers focused on necessities. Target offered a cautious outlook for the third quarter amid an erratic start to the back-to-school season and said it would slow its store expansion in fiscal 2009.

“The customer is very cash-strapped right now and in some ways, our greatest strength (has) become somewhat of a challenge,” said Gregg Steinhafel, Target's president and chief executive, during an investor conference call. “During these tough times, some of our consumers don't want to be tempted as much as they have in the past.”

Home Depot, the nation's largest home improvement retailer, saw its profit drop 24 percent and reiterated its weak outlook for the year.

Still, the results weren't as bad as Wall Street expected, and the retailer benefited from a return of do-it-yourselfers, lulled by warmer weather and the government stimulus checks.

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