Retailers Sending Warning Signals

Warnings and lowered expectations are starting to cause worry over full-year estimates.
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Earnings warnings and lowered expectations are the height of fashion among retailers this spring.

Sears

(S) - Get Report

and

Office Depot

(ODP) - Get Report

joined the in crowd on Thursday, telling investors that their earnings would fall below analysts' expectations.Their warnings followed those of at least a half-dozen other retail players over the past two weeks.

Such warnings call into question whether many of these companies will be able to meet their profit targets for the full year, said Rob Wilson of Tiburon Research.

"When people warn this early in the year, that's not a good sign," Wilson said.

The

first indications that springmight not be so hot for retailers started appearing last month, when many retailers reported their fourth-quarter earnings and

disappointing February sales. Following those reports, companies including

PetsMart

(PETM)

,

Talbots

(TLB)

and

BJ's Wholesale Club

(BJ) - Get Report

warned that first-quarter or full-year earnings would come in lower than analysts'expectations. BJ's, for instance, warned that its 2003 earnings would comein 46 cents a share lower than its previous guidance.

Following further sales

disappointments in March, a growing number ofretail chains have chimed in. In the last two weeks,

Target

(TGT) - Get Report

,

RossStores

(ROST) - Get Report

,

J.C. Penney

(JCP) - Get Report

and

Safeway

(SWY)

have all sought to deflate analysts' projections.

In their recent earnings reports,

Nordstrom

(JWN) - Get Report

and

Best Buy

(BBY) - Get Report

also warned that they won'tmeet expectations.

Nordstrom, for instance, said that its first-quarter earnings wouldcome in below the 23 cents to 27 cents a share it had previously projected. Last week, Safeway said it expected its first-quarter earnings from continuingoperations to come in between 43 cents and 45 cents a share. Analysts hadprojected that the grocery chain would earn 54 cents a share in its quarterended March 22, according to Thomson Financial/First Call.

Although retailers have given a variety of reasons for their expectedshortcomings, two have proven especially popular: weak consumer spendingand distractions caused by the

war inIraq.

Sears, which warned that its second-quarter earnings would come in upto 33 cents below analyst projections of $1.18 a share, echoed part ofthis sentiment in its earnings reporton Thursday.

"Given the current economic environment and cautious consumersentiment, the company expects that near-term retail sector growth will bemodest," the company said in a statement.

But not everyone is buying this standard line. Wilson, for instance,blames the earnings shortfalls on overly optimistic expectations bycompanies and analysts, cutthroat competition and bad buying decisions.

"They probably had an inkling two to three months ago that theywere going to struggle but kept crossing their fingers," Wilson said. "Thefolks that are giving people earnings guidance are the same merchants thatfeel they can sell ice to the Eskimos. They truly believe they can overcomea weak economy and competition and take market share."

Despite Wilson's concerns and other analysts' skepticism, Sears atleast believes that its projected earnings shortfall won't affect itsfull-year results. The company affirmed its full-year guidance on Tuesdayand projected that it would best analysts' expectations of a $4.86 a shareprofit by up to 29 cents a share.