Holiday season sales forecasts from U.S. discount retailers will likely be trimmed as record gasoline and heating costs cut into customers' spending power, according to analysts.

Some retailers have put a portion of the blame for slow sales in recent months on Americans spending more for fuel and have already cut earnings forecasts for the rest of 2004.

"Unless the oil price retreats sometime in the near future, which oil experts are not saying will be the case, we can only look forward to a glum holiday season," said Kurt Barnard, president of industry forecaster Retail Consulting Group (search).

"The worst is yet to come. So far we've just been looking at the impact of gasoline ... but soon people will start using heating oil, with forecasts for a severe winter," he added.

Barnard forecast retail sales rising by a maximum of 3 percent this holiday season after a 4 percent rise last year.

On Monday, U.S. crude oil prices rose to a record $53.67 a barrel ahead of the year's most important sales season, which accounts for nearly a quarter of some retailers' annual sales.

More upmarket retailers such as Neiman Marcus Group Inc. (NMGA) and Saks Inc. (SKS) were expected to escape relatively unscathed since their wealthier clientele were seen better able to weather the surge in fuel prices.

But retailers focused on lower-income earners were expected to suffer, with a survey this month by The NPD Group finding 72 percent of consumers will shop this holiday at discounters like Wal-Mart Stores Inc. (WMT) and rival Target Corp. (TGT)

Wal-Mart, the world's biggest retailer, cut its sales forecast for the current quarter in early September and is now expecting sales to rise by 2 to 4 percent from a year ago while Target has yet to adjust its sales forecast.

"The oil price is something of concern to our customers ... but we think it has now been factored in," said a spokeswoman from Wal-Mart's Bentonville, Ark., headquarters.

Some analysts, however, said Wal-Mart was being overly optimistic, particularly with estimates that heating costs could rise as much as $500 per household this winter.

"Sales will be very tough to come by and overall rise about 2 to 3 percent with most of that growth in the mid-to-upper market segment," said Gary Ruffing, head of the retail services group at management consulting group BBK Ltd.

"Heating costs on top of gas prices will put more pressure on the lower market, Middle America and Wal-Mart customers. There are a lot of signs it will not be a stellar Christmas."

Analyst James Ragan from Crowell, Weedon & Co., said an acceleration in jobs growth could offset higher oil prices.

The International Council of Shopping Centers (search) forecast same-store sales — comparing stores open at least a year — rising 3-4 percent this holiday season with oil prices cutting half to 1 percentage point off sales and Wal-Mart hardest hit.

The council's chief economist, Michael P. Niemira, said Wal-Mart sales were twice as sensitive to gasoline price hikes as the overall industry due to its customer base.

"At the moment the oil price rise is really contained at the lower end but my worry is there could be a greater impact if prices remain high for an extended period," Niemira said.