Sales over holidays dissatisfy retailers


Published: Friday, January 5, 2007 at 6:01 a.m.
Last Modified: Friday, January 5, 2007 at 12:02 a.m.

NEW YORK — December's lackluster retail sales left the nation's merchants wondering Thursday about their chances for a turnaround in 2007 — even as several big merchants were scaling back their fourth-quarter earnings expectations.

As retailers reported their sales for the month and the entire holiday season, many blamed their disappointing showings on mild weather that depressed sales of winter wear like heavy coats, and on consumers who waited until just before Christmas to do their shopping. But it was clear that shoppers, worried about the housing market and energy prices, were waiting to get the lowest possible prices — a cautious stance that's expected to continue this year.

December's disappointments crossed all retail categories, from Limited Brands Inc. to jewelry chain Zales Corp. and could be a harbinger to weak profit reports when retailers release their fourth-quarter results next month; retailers' fiscal years generally end in late January. A number of retailers including Zales, BJ's Wholesale Club Inc., Gap Inc. and Ann Taylor Stores Corp. cut their profit outlooks Thursday because they were forced to slash prices to lure shoppers.

Wal-Mart Stores Inc. posted better-than-expected results for December following a dismal November, but the discounter's overall holiday season was still its worst ever, analysts said.

"The season depended not on what the current economic conditions were but what consumers perceived," said Michael P. Niemira, chief economist at International Council of Shopping Centers. He noted that while gas prices declined and the housing market's slump appeared to be leveling off, "these concerns were pretty much ingrained in the consumers."

The International Council of Shopping Centers-UBS sales tally posted a 3.1 percent gain in December, in line with original expectations. That means for the November-December period, same-store sales averaged a 2.8 percent gain, slightly below the original forecast of 3 percent. The tally is based on same-store sales, or sales at stores open at least a year; these sales are the industry's standard for measuring retailers' health.

"The tone was more pessimistic than optimistic," Niemira said. "I think when you look back, November-December may be a good bellwether for the industry performance for this year."

For 2006, the ICSC-UBS survey averaged a 3.7 percent gain in same-store sales, but Niemira expects the pace to slow in the new year to about 3 percent.

Although retailers had a good start during the Thanksgiving weekend, many stores struggled in December and a shopping surge just before and after Christmas wasn't enough to make up for lost sales. Merchants tried to stick to their previously planned discounts, but at the season's end they resorted to bigger-than-anticipated cuts to pull shoppers in.

Balmy weather across much of the country meant consumers were disinclined to buy coats and gloves, depressing sales at many apparel stores. Declining gasoline prices and a steady job market should have helped merchants, but Ken Perkins, president of RetailMetrics LLC, a research company in Swampscott, Mass., believes the recent drop in home equity loans — a big source of buying power over the past few years — curtailed spending among middle-income shoppers.

Sales figures were also hurt by two big shifts in the way consumers shop: the increasing popularity of gift cards and the growing migration toward online buying, which is not reflected in same-store results. Gift card sales are only posted when they are redeemed rather than bought.

Wal-Mart, which warned early in the season that its same-store sales gain would be no better than 1 percent, posted a 1.6 percent increase for December. Retail industry analysts polled by Thomson Financial expected a 1 percent gain.

The results followed Wal-Mart's 0.1 percent decline in same-store sales in November, its first monthly same-store sales drop in a decade.

Wal-Mart had its weakest December performance since 2000, when it posted a 0.3 percent gain, according to Thomson Financial. The slim 0.8 percent increase for November and December combined was the worst since Thomson Financial began tracking the data in 1995.

Wal-Mart has struggled with a mix of problems, including the fact that its lower-income customers were hurt by gas prices. But the company's lackluster sales have persisted even as the cost of gas retreated — partly because its attempt to broaden its appeal to higher-income shoppers was poorly executed, particularly in apparel and home furnishings.

Rival discounter Target Corp. had a 4.1 percent gain in same-store sales, below the 4.5 percent estimate.

Costco Wholesale Corp. posted a 9 percent gain in same-store sales, beating Wall Street's 5.7 percent estimate. BJ's Wholesale had a 0.6 percent same-store sales gain, below the 1.3 percent estimate.

Federated Department Stores Inc., which acquired May Department Stores Co., had a 4.4 percent gain in same-store sales, below the 5.5 percent estimate from Wall Street. The same-store results include only the Macy's and Bloomingdale's stores that existed before September, when the company transformed most of the former May Co. stores to Macy's units.

J.C. Penney Co. Inc. had a 2.6 percent gain in same-store sales at its department stores, slightly better than the 2.4 percent estimate. Internet sales rose 15.2 percent.

Nordstrom Inc. reported a robust 9 percent same-store sales gain, exceeding the 4.3 percent forecast. Luxury retailer Saks Inc. had an 11 percent same-store sales, gain, nearly twice the 5.3 percent estimate.

Pier 1 Imports Inc. suffered a 10.7 percent drop in same-store sales, worse than the 9.4 percent analysts anticipated.

Zale, which did not break out December same-store sales figures, reported a same-store sales increase of 2.3 percent for November and December. It said profit margins were below expectations due to more aggressive price cutting.

Limited Brands had a 4 percent gain, well below the 9.3 percent Wall Street expected.

Gap, which has long struggled with its fashions, suffered an 8 percent drop in same-store sales, worse than the 5 percent estimate. The company said it was slashing its annual profit outlook.

AnnTaylor posted a 5.3 percent decline in same-store sales; analysts predicted a 0.6 percent gain.

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