Holiday sales: November OK but trouble ahead

Discounters benefited last month from Americans trading down on gift purchases, but retailers overall face tough December.

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By Parija B. Kavilanz, CNNMoney.com senior writer

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NEW YORK (CNNMoney.com) -- Steep holiday discounts, combined with more Americans trading down on their gift purchases, boosted sales at discounters last month, while a lack of compelling fashion trends pummeled sales at specialty clothing chains.

Wal-Mart (Charts, Fortune 500) reported Thursday that November sales at its stores open at least a year - an industry measure known as same-store sales - were at the high end of its guidance.

The world's largest retailer said sales rose 1.5 percent and were helped by "very solid Black Friday sales" of entertainment items as well as increased sales in its grocery and pharmacy businesses.

Black Friday, or the day after Thanksgiving, marked the start to this year's holiday shopping marathon. The November-December period accounts for as much as half of merchants' annual profits and sales.

Wal-Mart was particularly aggressive this year with its holiday promotions and chopped prices on thousands of toys, household products and electronics weeks ahead of its rivals.

For December, Wal-Mart expects same-store sales to rise between 1 and 3 percent.

November's gains will be December's loss

Ken Perkins, president of Retail Metrics, said the fact that Thanksgiving fell early this year - forcing retailers to kick off their promotions earlier - salvaged sales at many retailers last month but at the cost of stealing sales from December.

"Department stores are especially vulnerable to this calendar shift," Perkins said. "Watch out for warnings from Macy's and others."

Indeed, Macy's (Charts, Fortune 500), while reporting a 13.4 percent jump in November same-store sales, warned that December sales will be down between 4 to 7 percent.

"A calendar shift resulted in an additional week after Thanksgiving falling in the month of November this year compared to December last year," Macy's CEO Terry Lundgren said in a statement. "This calendar shift will result in our December sales being lower than last year. It is important that the November-December holiday selling period be viewed together rather than each month individually."

High-end department store chain Nordstrom (Charts, Fortune 500) issued a similar warning for December after posting an impressive 8.7 percent sales gain last month. The retailer expects December sales to be "negatively impacted" by the calendar shift.

Wal-Mart rival Target (Charts, Fortune 500) posted a 10.8 percent same-store sales increase last month. But adjusted for the calendar shift, the retailer said, November same-store sales rose only 1.1 percent.

"Our [November] sales results largely met expectations through our two-day post-Thanksgiving event, but softness in the final week of November caused the month overall to fall short of our planned range," Target CEO Bob Ulrich, said in a statement.

"These sales trends would need to meaningfully improve in December in order to achieve fourth quarter EPS [earnings-per-share] growth," he said.

Target shares slumped 7 percent on the New York Stock Exchange.

Target did not provide profit guidance for the fourth quarter. Analysts expect the retailer to earn $1.37 a share for the fourth quarter on sales of $20.7 billion and full-year profits to come in at $3.54 a share on revenue of $64.1 billion.

"November's winners were those retailers that discounted heavily. Value became the trump card for Wal-Mart. Target didn't discount as aggressively and they suffered," said Marshal Cohen, chief retail analyst with NPD Group.

"Black Friday was OK for retailers. But what retailers have to be careful about now is consumers running out of steam," Cohen said. "The holiday season started very early, many people have wrapped up their gift shopping. The story for December is how well retailers manage their prices and inventory to hit their holiday targets."

Cohen says retailers have to score between 2 to 3 percent revenue growth in order to pull in decent profits this month and ensure that they don't carry excess holiday inventory into 2008.

"I think retailers will be very aggressive in December to get sales going. This is an even bigger month for them than November," he said.

Elsewhere, wholesale club operator Costco (Charts) logged a 9 percent surge in its total same-store sales last month. A weak dollar helped the retailer post a double-digit percentage sales gain in its international business.

But clothing chain Chico's (Charts) suffered a 13.7 percent drop in its November sales and teen apparel seller Hot Topic's sales tumbled 8.3 percent.

Thomson Financial, which compares monthly results at 43 of the nation's largest retail chains, said total overall November same-store sales rose 4.0 percent, better than a 2.5 percent gain for the same period a year ago. To top of page

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Market indexes 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. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.