By: Lucia Moses Deutsche Bank publishing analyst Paul Ginocchio cut his retail advertising growth forecast for the newspaper industry while warning that department store spending is migrating to TV as stores focus on brand-building.
Citing in part weakness in department store advertising, Ginocchio wrote in an Oct. 6 research note that he expects retail spending in newspapers to grow 1.5% in the fourth quarter instead of 3%, and 2% in 2004 instead of 3%.
He also lowered his fourth-quarter and full-year 2003 earnings expectations for Gannett Co. Inc., Knight Ridder, the New York Times Co., and the Tribune Co.
He did not change his ratings or price targets for any newspaper stocks, however, pointing to signs of an improved help-wanted environment.
Same-store sales for traditional department stores, which contribute an estimated 4% to 9% of total newspaper ad dollars, are down 2% from February to August, according to the note.
He also pointed to concerns about consumer spending habits and radio ad revenue growth.
Ginocchio also wrote that based on talks with executives from six traditional department stores, he sees a trend toward use of brand-building and away from promotional ad vehicles such as newspapers, which historically garner 90% of those stores' ad budgets.
"Our conversations with the retailers left us with the impression that they are growing increasingly skeptical about the efficacy of newspaper and promotional advertising," Ginocchio wrote. "As the department stores become more willing to use other media, newspapers will likely be forced to reduce ad rates to induce the retailers to remain in the fold."
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