The Exchange

Disappointing Holiday Sales? Blame the Shutdown.

The Exchange

At long last, Congress reached a deal Wednesday to reopen the government after 16 days of impasse, letting the American public exhale a bit and bringing a modicum of stability to the weakened economy.

The compromise, which President Obama signed off on last night, funds the government through Jan. 15, 2014, and suspends the debt limit until Feb. 7 (so get ready for another go-round then).

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eBay sign: Credit Reuters
But what about the present? For a handful of major companies that rely on a confident U.S. consumer to bolster the bottom line, the government logjam is being blamed for potentially weaker sales in the upcoming critical holiday season.

Indeed, a Goldman Sachs report published this week said that, at least partially because of the government shutdown, 40% of consumers surveyed have curbed their spending. Those with household income under $35,000 were particularly impacted, with 47% indicating they were, compared with only 32% of those earning more than $100,000.

Retailers heavily dependent on consumers buying Christmas presents in December (or back-to-school supplies in August) have been known to blame things like the weather for disappointing sales. For instance, this past April was the coldest in the U.S. in 13 years, and two months later, Ann Taylor (ANN) blamed the chillier temperatures for hurting its first-quarter sales. Target (TGT) did the same.

The National Retail Foundation projects that holiday retail sales will increase 3.9% this year, though when it offered the outlook, it was somewhat dependent on the shutdown being resolved without too much damage being done. But if consumers don’t whip out their plastic this holiday as much as forecast, the shutdown – and Congress members’ obstinacy – may be blamed.

That said, not every company appears to be fretting over the shutdown, and speaking of credit cards, American Express (AXP) indicated no sign of adverse effects from the standoff in Washington during its conference call on Wednesday. To the contrary, the company reported that its net income rose 9% in the third quarter, as cardholders, who tend to be more affluent than other card carriers, spent more in the U.S. and elsewhere.

Answering a question about the shutdown’s impact on corporate spending, CFO Jeffrey Campbell said “… if I take the time period from the beginning of the quarter on July 1 really to the most recent days, there [are] no particular trends within that period between the beginning of the quarter and a couple of days ago that show any meaningful variance from that overall sequential trend. So, there is just nothing in our data that would support any particular impact in – amongst our customer base and what they spend money on, from the economic turmoil.”

Here are a few of the companies who've offered cautious comments:

Stanley Black & Decker (SWK)

The New Britain, Conn., tool maker this week lowered its expectations for the year, citing slower growth in emerging markets and a hit from the shutdown.

On a conference call with analysts on Wednesday, Chief Financial Officer Donald Allan said: "We really believe the U.S. government sequestration and shutdown have had a modest impact in the third quarter on us and will have a slightly more significant impact on us in the fourth quarter."

eBay (EBAY)

Third-quarter earnings for the San Jose, Calif., online auction site slightly beat analysts’ expectations, but it cautioned that its fourth-quarter performance would be tepid. The company said current slower growth and a weaker U.S. dollar that’s been impacting overseas transactions mean annual profits and revenue would come in at the low end of its outlook. In response to a question about weaker holiday guidance on the earnings call, CFO Bob Swan suggested that the shutdown and uncertainty is taking its toll.

“We haven't really seen any more positive signs in October than what we experienced through the latter part of the third quarter in the U.S. So all of that and all the anxiety we see when we pick up the newspaper every day makes us fairly cautious about how we look at the holiday season and its impact on our outlook for the fourth quarter. I hope I'm too conservative. But right now, the signs point to a bit of caution.”

Wal-Mart (WMT)

On Tuesday, Wal-Mart executives said they’re seeing a "tough" and "unpredictable" global economy. In an address to investors, CEO Mike Duke said the partial government shutdown "is on the minds of our customers."

Hoping to capture consumers’ attention early in the hyper-competitive holiday season, Wal-Mart is promoting low prices on a variety of products, while Sam's Club, owned by Wal-Mart, will have another discount booklet for members starting on Oct. 30, as both chains try to boost sales early in the fourth quarter, according to Reuters report.

Hyundai

John Krafcik, Hyundai Motor’s CEO of U.S. sales unit, told Bloomberg this week that the “anxiety” generated by the government shutdown has kept potential car buyers holding onto their wallets.

“We’ll probably see the industry off 5% to 10% this month, compared to where it was in September. I think a lot of it has to do with this shutdown discussion,” Krafcik said.

Family Dollar Stores (FDO)

Executive Chairman and CEO Howard Levine expressed concern that the situation in Washington was hurting consumer confidence. On an Oct. 9 earnings call, Levine said the worries regarding the shutdown were hitting his company's customers in a clear way.

"We have – over half of our customers are on government – some sort of government assistance out there," he said. "So when they hear and read about all this uncertainty, I think it impacts their confidence regarding their outlook."

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