U.S. Shopping to Slow for Rest of 2012, Citigroup Says

U.S. consumer spending will slow in the second half of the year as shoppers reduce purchases amid a weak economic recovery, a volatile stock market and uncertainty over the presidential election, Citigroup Inc. (C) said.

That will make the important back-to-school shopping season “challenging” for retailers, Citigroup said in a report. In a survey commissioned by the New York-based banking company, 81 percent of respondents planned to spend the same or less in the second half than a year ago. About two-thirds expected the economy to deteriorate or not improve.

Citigroup first noticed a slowdown in April when same- stores sales trailed its forecasts for the first time since December. Sales then remained soft in May and June. Now high- income shoppers, who account for about 50 percent of total spending and own 90 percent of U.S. equities, are at risk of cutting back with increased volatility in the stock market.

Several retailers and consumer companies have already reported weakening results with Hhgregg Inc. (HGG) being the most recent. The Indianapolis-based electronics chain with more than 200 stores cut its annual profit forecast by as much as 17 percent yesterday, as sales of televisions plummeted.

Those results followed Procter & Gamble Co. (PG), Tiffany & Co. (TIF), Lowe’s Cos. and Tempur-Pedic International Inc. (TPX) all cutting annual profit projections, while predictions from Lululemon Athletica Inc. (LULU), Limited Brands Inc., Macy’s Inc. (M) and Clorox Co. (CLX), trailed analysts’ estimates.

U.S. retail sales fell 0.2 percent in May, following a similar decline in April, according to the U.S. Commerce Department. Sales excluding automobiles slumped by the most in two years. June results are scheduled to be released on July 16.

Wal-Mart to Benefit

Companies that are known for low prices or sell non- discretionary items may benefit as shoppers retrench, Citigroup said. Those retailers include Wal-Mart Stores Inc. (WMT), Dollar General Corp. (DG) and Kroger Co. (KR) Manufacturers such as Hanesbrands Inc. (HBI), or brands considered industry leaders, such as VF Corp. (VFC)’s Vans and Timberland, will outperform.

Because wealthy consumers may cut back or trade down to cheaper retailers, Citigroup recommends avoiding department stores Nordstrom Inc. (JWN), Saks Inc. (SKS) and Macy’s Inc.

Citigroup polled consumers between June 25 and June 28, with respondents evenly split between men and women. Those questioned included a representative sample of the population in terms of age, income and household size, Citigroup said.

To contact the reporter on this story: Matt Townsend in New York at mtownsend9@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net

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