Retails forecast +4.5% in 2012 Sales.

Following a better-than-expected back-to-school season, retailers are optimistic for year-end retail sales. According to a new survey from BDO USA, LLP, retail CFOs expect a 4.5 percent increase in total 2012 sales. While the forecast shows improving confidence when compared to sales projections for 2011 (+3 percent) and 2010 (+2 percent), retailers have been relatively guarded in year-end expectations. In 2011, total retail sales exceeded expectations and increased 7.3 percent, according to the Commerce Department.

Retail CFOs are also growing more confident in the overall economic picture. While a majority (57 percent) expect to see a continuation of stagnant economic conditions in the near future, the number of CFOs forecasting an ongoing economic turnaround nearly tripled this year (32 percent, up from 11 percent in 2011).

“Consumers proved resilient through back-to-school season, and that is fueling greater optimism for holiday sales results,” said Doug Hart, partner in the Retail and Consumer Product Practice at BDO USA, LLP. “But retailers aren’t counting their dollars just yet. Forecasts are cautious as retailers closely watch unemployment, election results and inventory levels – any of which could throw a wrench in holiday results.”

These findings are from the sixth-annual BDO Retail Compass Survey of CFOs, which examined the opinions of 100 chief financial officers at leading retailers located throughout the country. The retailers in the study were among the largest in the country, including 11 percent of the top 100 based on annual sales revenue. The survey was conducted in August and September of 2012.

Other major findings of the 2012 BDO Retail Compass Survey of CFOs:

Positive Predictions for Comparable Store Sales. Retailers also expect better sales results this year for their stores open a year or more. With signs pointing towards a strong finish to the third quarter, nearly half of CFOs (48 percent) forecast an increase in comparable store sales for the second half of 2012, which includes holiday results. In total, CFOs forecast a 3.6 percent increase in comparable store sales for the second half of 2012, which is consistent with 2011 projections (3.5 percent). For all of 2012, retailers forecast a 4.1 percent increase in comparable store sales.

Inventory Levels are Flat for 2012 Holidays. A majority (55 percent) of CFOs say they have maintained their inventory levels for the 2012 holiday season. While one-in-four say they increased their inventory, overall, CFOs project a flat increase of 1.1 percent over 2011 levels. Retailers remain divided about whether too much or insufficient inventory is the bigger risk to their holiday sales. Amid pressures to avoid heavy discounting and preserve margins, 58 percent of retailers say too much inventory is the greatest risk, a change from 2011 when a majority (53 percent) cited insufficient inventory as the bigger risk.

Cost of Products Remains Top Threat to Margins. Inventory levels, however, are not the greatest threat to margins for most retailers in the remainder of 2012. Instead, the cost of products tops the list, with 40 percent of retail CFOs noting it as the primary threat. CFOs also cite logistics and transportation (18 percent) and store operating costs (17 percent) in addition to inventory levels and markdowns (17 percent). Among CFOs at the 100 largest retailers, however, 36 percent say inventory levels and markdowns are the top threat to margins, up from 25 percent in 2011. “Commodity costs may have stabilized, but price-conscious consumers are keeping retailers on their toes,” said Al Ferrara, partner and national director of the Retail and Consumer Product Practice at BDO. “This winter, meticulous inventory selection and promotion decisions will take center stage in the competition for holiday shoppers.”

Unemployment Still Challenging Consumer Confidence. When asked which economic challenge has had the greatest impact on consumer confidence so far this year, 60 percent of CFOs say unemployment. Amid fluctuating jobless claims and an unemployment rate still above 8 percent, it’s no surprise that 41 percent of retailers say unemployment will have the most impact on consumer confidence during the remainder of 2012. As political tensions mount and Election Day draws near, another 29 percent point to the presidential race and its outcome as a major challenge. Retailers also say financial market volatility (15 percent), personal credit availability and debt levels (7 percent), a weak housing market (6 percent) and fuel prices (2 percent) will be top influencers of consumer confidence in the remainder of 2012.

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