Weakest holiday season in years

Many stores suffer big sales misses in December, but Wal-Mart and Costco benefit from cash-strapped consumers shopping for discounts.

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By Parija B. Kavilanz, CNNMoney.com senior writer

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NEW YORK (CNNMoney.com) -- Retailers reported deep declines in their December sales Thursday, reflecting a 2007 holiday shopping season that is turning out to be one of the weakest in years.

"These numbers are bad because consumers are clearly seeing some pain here," Ken Perkins, president of sales tracker Retail Metrics, said.

According to Perkins, the holiday season started off strong as shoppers lapped up juicy discounts on Black Friday, the day after Thanksgiving which traditionally marks the start of the November-December gift-buying marathon which can account for as much as half of retailers' annual profits and sales.

"But then there was a three-week lull after that. The early shopping momentum didn't carry through the rest of the [holiday season]," Perkins said.

Perkins, who tracks same-store sales at 43 retail chains, said combined November-December sales rose 1.7 percent, their weakest gain since 2002.

In the overall retail sector, Thomson Financial, which also compares monthly results at 43 of the nation's largest retail chains based on analysts' estimates, said total December same-store sales rose just 0.5 percent compared to its revised estimate for a 0.7 percent gain. That's much weaker than the 3.3 percent gain for the same period in 2006.

Same-store sales reflects sales at stores open at least a year and is a key measure of performance in the retail sector.

The firm said 27 retailers missed their December sales estimate, 14 beat and 2 retailers met forecasts.

Even though November same-store sales rose a much better 4 percent overall, the average of the two months taken together showed a 2.3 percent rise, which Thomson said is the slowest pace of growth since 2004 when sales for the two months combined also rose 2.3 percent.

The National Retail Federation, the industry's largest trade group, expects total sales for November and December combined rose 4 percent this past holiday season, which would mark the slowest pace of growth since 2002. The NRF will release its final tally of holiday sales next week.

"Consumers are feeling the squeeze. They are spending less," Perkins from Retail Metrics said. "Now there's job uncertainty with last month's unemployment number showing a surprisingly large uptick."

The International Council of Shopping Centers (ICSC) also said Thursday that its holiday sales tally showed an increase of 2.2 percent for the season, its slowest gain since 2002, based on ICSC's data.

Stevan Buxbaum, retail analyst with consulting firm Buxbaum Group, agreed with Perkins. "People bought much less over the holidays," he said. But consumers also shopped differently. He said many more shoppers made their purchases online, stealing some - but not a significant slice - of sales away from brick-and-mortar stores.

Internet sales accounted for only 6 percent of total holiday sales, which the NRF estimates to come in at $474.5 billion for the 2007 holiday sales season.

Clothing sellers, department stores and other specialty chains delivered some of the biggest sales misses last month.

Gap (GPS, Fortune 500), the No. 1 apparel seller, reported a 6 percent same-store sales decline last month. Teen apparel chain Pacific Sunwear posted a 2.9 percent sales drop, and women's clothing chain Ann Taylor's sales tumbled 9.4 percent.

Elsewhere, department store Macy's (M, Fortune 500) sales fell 7.9 percent versus expectations for a 6.5 percent decline while sales at Dillard's fell 5 percent.

Wal-Mart Stores reported December sales that were at the high end of its guidance for the key holiday shopping month, but warned about its fourth-quarter earnings.

Wal-Mart (WMT, Fortune 500), the world's largest retailer, said sales rose 2.4 percent last month, driven by strong demand for its grocery, pharmacy and electronics products. It had expected a 1 to 3 percent increase for the month.

"Our price leadership position was clear very early in the holiday season, and customers responded throughout the period to our pricing and merchandise offerings," Eduardo Castro-Wright, Wal-Mart Stores CEO, said in a statement.

For January, Wal-Mart said it expects same-store sales to increase by 2 percent. However, the company said it expects fourth-quarter earnings "will be pressured by higher interest expense versus last year."

The retailer estimates earnings of between 99 cents to $1.03 a share for the quarter. Analysts expect the retailer to post a quarterly profit of $1.02 a share.

Wal-Mart was especially aggressive with holiday discounts this past season and chopped prices on thousands of toys and electronics products in late October, weeks ahead of its rivals.

Wal-Mart rival Target (TGT, Fortune 500) posted a 5 percent sales decline for December, missing analysts' forecasts for a 5.6 percent decrease, and reiterated that fourth-quarter results would be below the prior year's performance.

Analysts currently expect Target to post earnings of $1.26 a share for the fourth quarter, down from last year's earnings of $1.29 for the same period, according to Thomson Financial.

There were a handful of winners besides Wal-Mart. Costco (COST, Fortune 500) posted a same-store sales increase of 7 percent overall, including a 5 percent same-store sales increase in its U.S. stores.

Buckle Inc., seller of branded denim and trendy clothing, posted a stellar 18.7 percent jump in its December same-store sales. Teen-clothier Aeropostale reported a 12.2 percent sales increase, which analysts say came on the back of heavy discounting in December.

Toys "R" Us reported a 3.1 percent same-store sales increase versus a 4.1 percent gain last year at its namesake stores for the nine-week holiday period from Nov. 4 to Jan. 5. Sales at its Babies "R" Us division rose a much softer 0.9 percent versus a 6 percent gain in 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.