Warm weather chills holiday sales

Costco, American Eagle report Nov. sales increases just shy of analysts' estimates; Wal-Mart expects Dec. sales to be flat to up 1%; Gap takes beating.

By Parija B. Kavilanz, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- Although retailers benefited from a surge of bargain hunters on Black Friday and the Thanksgiving holiday weekend, warmer-than-usual weather tempered November sales gains especially at some specialty apparel and department store chains.

"Moderate weather around the country impeded sales of seasonal apparel. People just didn't feel like buying sweaters and coats," said Ken Perkins, retail analyst and president of research firm Retail Metrics.

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Among the casualties, sales at No. 1 apparel seller Gap Inc. (Charts) fell 2 percent. "November was a challenging month as negative traffic trends persisted," Sabrina Simmons, Gap's senior vice president, said in a statement.

What's worse is that the company expects pressure on profit margins to continue into December.

In a note to clients Thursday, Lazard Capital Markets analyst Todd Slater downgraded Gap's stock to "hold" from "buy."

"Based on the company's latest merchandise deliveries, we have lost confidence in management's ability to source the right product, let alone the right merchants," he wrote.

"[Our] Channel checks indicate that Gap is canceling an enormous amount of product, especially denim, signaling a meaningful amount of internal disarray and lack of confidence in its spring merchandising plans. At Old Navy, we hear morale is decreasing, and given the size of the ship, we don't believe the new management team will be able to effect a turn for at least a year," Slater said.

Another victim was teen clothier Abercrombie & Fitch (Charts). The retailer's sales fell 3 percent in the month.

Another teen clothing chain American Eagle Outfitters (Charts) posted a 14 percent jump in its monthly sales at stores open at least a year - a key retail metric also known as same-store sales - but fell shy of analysts' expectation for a 14.8 percent increase.

November was a disaster for struggling home furnishing chain Pier 1 Imports. Its sales tumbled 15.3 percent as aggressive advertising and discounts failed to attract more shoppers.

Analysts said the writing is on the wall for Pier 1.

"Clearly business remains weak and we do not see much of a turnaround story unfolding. But, the stock has support due to speculation regarding a takeover, particularly as the [company's] management has publicly stated that it has hired bankers and is exploring strategic alternatives," Deutsche Bank analyst Michael Baker wrote in a research note Thursday.

Women's specialty apparel merchant Ann Taylor also blamed warm weather for stalling sales of sweaters, outerwear and cold weather accessories. Its sales slipped 4.3 percent.

November and December together account for as much as 50 percent of retailers' annual profits and sales.

Thomson Financial Same-Store Sales Estimate Index, which tracks data from 56 retail chains, projects that overall sales are expected to increase 2.7 percent in November, based on analysts' consensus estimates.

But excluding Wal-Mart, sales are forecast to rise a stronger 4.8 percent. That compares with an overall increase of 3.7 percent last November including Wal-Mart, and 3.3 percent sales growth excluding Wal-Mart.

According to First Call, of the 51 retailers who had already reported their November results, 48 percent had missed analysts' forecasts while 30 percent beat estimates and 4 percent met forecasts.

Said Perkins, "December will be even more crucial now for retailers to make up for last month's shortfall. The real sales battle will take place in the final 10 days before Christmas. With Christmas Day on a Monday this year, the final weekend before it will be huge."

The National Retail Federation forecasts holiday sales will grow 5 percent to $457.4 billion this year, slower than last year's 6.1 percent increase.

More worries for Wal-Mart

Wal-Mart (Charts), the world's largest retailer, suffered a 0.1 percent sales dip, which is worse that its initial hopes for sales to come in flat for the period.

This would mark only the second time since 1995 that Wal-Mart has reported negative sales, according to the Thomson Financial database. The company posted a 0.6 percent comparable sales decline in April 2005, which it blamed on an Easter calendar shift.

Total sales for the four-week period ended Nov. 24 were $28.5 billion, or up 11.9 percent from $25.5 billion for the same period last year.

Comparable sales at the Wal-Mart division fell 0.5 percent while sales at the retailer's Sam's Club unit rose 2 percent.

Wal-Mart said electronics, food and pharmacy were its strongest categories last month. "Home and apparel business is challenging and this will continue throughout the fourth quarter," Eduardo Castro-Wright, CEO of Wal-Mart's U.S. Stores Division, said in a statement."While we were disappointed in these areas, we did see strong results in our home and apparel basics."

The company said it expects to to see sales improvements in the weak-performing apparel and home categories by spring.

For December, the company expects same-store sales to be flat to up 1 percent.

Some industry watchers speculate that Wal-Mart's weakness may be isolated to problems with the retailer's own merchandise mix and other Wal-Mart-specific issues and not necessarily a broader sign of consumers reining in their spending habits.

Anthony Chan, managing director and chief economist with JPMorgan Private Client Services, cautions against dismissing Wal-Mart's poor numbers.

"Given its size and the millions of people who shop there every week, Wal-Mart really depicts what is happening in mainstream America," Chan said.

Chan compared the 2006 holiday season to a "tale of two cities. ... The upper end of the retail chain, like Tiffany's, is doing very well while the lower end including Wal-Mart and the dollar stores are struggling," he said."This trend indicates that while the equity market is doing well, the economy overall is moderating.

"But lower energy prices are giving some support to consumer spending. Holiday sales could be a little bit higher than last year but not by much," Chan added.

But Perkins said he was leaning toward believing Wal-Mart's problem are more company-specific.

"Wal-Mart's new store growth has been cannibalizing its same-store sales for a while now," he said. "It has had apparel missteps. But the good news is that overall sales growth still looks strong."

Moreover, Perkins said weakness in spending patterns of Wal-Mart customers hasn't translated into the same trends at other value-price retailers and department stores.

Rival discounter Target (Charts) posted a 5.9 percent jump in its monthly sales while sales at wholesales discount club operator Costco (Charts) rose 5 percent. However, Costco's increase was short of Wall Street's estimate for a 5.7 percent gain.

Kohl's sales increased 3.7 percent although that was lower than analysts' forecast for a 4.8 percent rise.

Cyber Monday sales hit record $608 million

Wal-Mart launches digital movie downloads

Special Report:Holiday Money 2006 Top of page

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.