Analysts Play Down Pre-Xmas Retail Optimism

Despite double-digit profits posted this week by several top U.S. retailers, including Wal-Mart, the largest jewelry retailer in the United States, and optimistic forecasts for the critical Christmas holiday season, some industry watchers are far less hopeful.

Although retail companies and research firms are pointing to dropping oil prices, which reached a peak ahead of the U.S. presidential elections earlier this month, as a factor allowing consumers to increase their buying, analysts are cautious in seeing cheaper fuel as an indicator that the retail sector is powering ahead.

Stores’ earnings have been boosted more as a result of containing or cutting costs rather than growth in sales growth, while oil prices, despite being 15 percent lower than two weeks ago, remain stubbornly high.

Among factors that could hit retail sales are concerns that U.S. inflation could start an upward rise and, as a consequence, a rise in interest rates by the Federal Reserve, a move which would leave consumers with less disposable income.

Earnings at Wal-Mart, the world's largest retailer, rose 13 percent in the third quarter, while profit at department store chain J.C. Penney Co nearly doubled. Department store chain Nordstrom Inc also reported an unexpectedly large rise in earnings and raised its forecast for the year, citing reduced tax rates, lower costs and tighter inventories.

Meanwhile, Richemont, the world's second largest luxury goods firm, is forecasting strong sales during the vital Christmas season as it posted a sharp rise in operating profits for its first half, which runs from April to March, boosted by a sector-wide recovery. The group said U.S. sales had been good during its first half.

U.S. third quarter sales generally were not so encouraging, however, with sales at stores open at least a year, which is regarded as a crucial retail performance measure, edging up just 1.7 percent, held back by record oil prices.

Crude oil surged above $55 a barrel during the third quarter before declining and is currently selling for around $46-47 a barrel.

High oil prices tend to limit consumer spending, particularly at discount chains such as Wal-Mart which serve lower-income shoppers.