Despite fears that the stock market crash would send consumer spending into a tailspin, many of the nation's major retailers reported Thursday that they eked out respectable sales gains during the holiday season.
But industry observers cautioned that some chains' profitability suffered from heavy markdowns and that merchants are bracing for another year of modest spending in 1988.
For the five weeks ended Jan. 2, retailers overall recorded sales gains of about 6% over the same period last year, with discount and department stores faring better than most specialty stores.
"Those are gains that really don't spell disaster at all," said Sandra Shaber, an economist with the Futures Group in Washington. It was clear, she added, that "the stock market crash had very little impact."
Even so, with real gains after inflation of only 2% to 3%, the sluggish sales pace made for the "worst Christmas since 1981," when the country was in the middle of a two-year recession, said Carl Steidtmann, vice president and chief economist with Management Horizons in Columbus, Ohio.
And Edward F. Johnson, an analyst with the Johnson Redbook Service in New York, said merchants can expect a tough first half this year as they attempt to unload heavy inventories of women's sportswear, a poor seller during Christmas, 1987.
Johnson added that, even though business gained momentum as the holiday season progressed, his investment firm has lowered earnings estimates for most retailers. When quarterly earnings are reported in February and March, Johnson expects to see gains over the year-earlier period of 7% to 8%, contrasted with the 15% to 16% increases that had been expected.
Among the retailers reporting sales Thursday were Sears, Roebuck & Co., the nation's largest merchant, with a 4.4% increase at stores open at least a year, or "comparable stores." Chairman Michael Bozic made no bones about the tough climate, calling the 1987 holiday period "the most competitive Christmas season in history."
However, Sears spokesman Gordon Jones said that the company "feels pretty good about (Christmas) and that business has picked up since the holiday.
"It has been excellent, even stronger than pre-Christmas," he said. "Considering all the alarm that was expressed about the effects of the stock market, consumers are showing their resilience and taking it in stride."
K mart, the discount chain based in Troy, Mich., was a strong performer, reporting a 5.7% comparable-store gain, with "particular strength" in home electronics, TV sets and women's apparel.
Although J. C. Penney's stores and catalogues managed an 8.4% comparable-store gain, Chairman William R. Howell acknowledged in a statement that the environment became increasingly competitive during the holiday period and that "the quality of our Christmas business was not up to our expectations." Surprised by what they said was a sudden downturn in Penney's mood, analysts rushed to reduce earnings estimates.
"The store managers were over-inventoried," said William N. Smith, an analyst with the Smith Barney, Harris Upham investment firm in New York. He now expects Penney to report annual earnings in the range of $4.50 to $4.55 per share, down from a previous forecast of $4.75.
Penney shares tumbled $3.125 to $43.50 on volume of 2.3 million shares. Penney was not alone in trading profits for volume, however.
"It was obviously a promotional season where most companies, if they made their sales plans, did it by buying sales with promotions," Smith said. "It will not translate as much as hoped into bottom-line growth."
Despite generally heavy sales promotions throughout Southern California, the Broadway department stores in Southern California actually eliminated one major post-Christmas sale day in the period, according to Chairman Philip M. Hawley.
"We felt good enough about the quality of the business that we didn't run it," Hawley said, noting that the move reduced sales volume for the period by less than 1.5%. "It makes for a more profitable month." For its five department store divisions, the company reported comparable-store gains of 3% in December.
Federated Department Stores, the Cincinnati-based parent of Bullock's, Bloomingdale's and I. Magnin, said sales were "considerably stronger" in December than in November, indicating that customers continued their trend toward procrastination of the last few years, according to spokesman Jim Sluzewski. Department store sales rose 5.9% in December, compared to a 1.6% gain in November. Other stores, including specialty stores, rose 15.4% in December, compared to 1% in November.
In general, observers noted, higher-priced stores such as Neiman-Marcus, I. Magnin and Bergdorf Goodman fared better in December than in November, as their clienteles put a buffer zone between themselves and the October market crash. On the other hand, moderately priced specialty stores such as the Limited, the Gap and Contempo Casuals continued to experience choppy waters, in part because of bloated inventories.
Walter F. Loeb, an analyst with the Morgan Stanley investment firm in New York, said that discount stores such as K mart and Wal-Mart, with a 12% comparable-store gain, performed the best. He added that department stores "did quite well and came through Christmas with flying colors," with a 5% comparable-store gain as a group.
Some stores, he noted, were aggressive about attracting shoppers during the pre- and post-Christmas period, in some cases staying open 24 hours a day and opening New Year's Day. Some Sears stores, for example, advertised a New Year's opening for only the second time in their history.
As for 1988, economist Shaber said "there's nothing that indicates a major consumer retrenchment," barring further disasters in the stock market. "The most likely outcome is another year of modest growth, pretty much matching 1987, but with more of a pronounced shift away from cars, furniture and appliances."
Given the patterns that emerged from August to December, Hawley added, "we have definitely seen the long-predicted slowdown in the rate of growth of consumer spending. That, in my judgment, is the real tip-off to 1988."
A MIXED BAG FOR RETAILERS
Total retail sales by major merchants for the five-week period ended Jan. 2, and percentage increase from the same period last year. Also included are comments from company officials SEARS Up 4.9% to $4.11 billion "Sales for the period nearly matched our expectations," according to Chief Executive Michael Bozic, "despite the most competitive Christmas season in history." K MART Up 8% to $4.10 billion. "We are pleased with our results for December," said Chief Executive Joseph E. Antonini. "Business was strong in both hard goods and apparel with particular strength in home electronics, television sets, stereos, cameras and ladies apparel." J.C. PENNEY Up 8.6% to $2.51 billion "While sales were strong, the retail environment became increasingly competitive during the period," said Chairman William R. Howell. "The quality of out Christmas business was not up to our expectations." MAY DEPARTMENT STORES (Includes May Co. California, Robinson's chains)
Up 10% to $1.85 billion Did not comment FEDERATED DEPARTMENT STORES (Includes Bullock's, but not Ralphs supermarket sales)
Up 6% to $1.57 billion. "Overall the climate was difficult, but it ended on a strong note," a company spokesman said. DAYTON HUDSON (Includes Mervyn's, Target) Up 19.1% to $1.99 billion "While I would not characterize it as a great Christmas, we did finish stronger than I thought we would at the beginning of the season," said Chief Executive Kenneth A. Macke. WAL--MART STORES Up 34% to $2.26 billion "Christmas met expectations for Wal-Mart," said a company spokeswoman, " and we felt like it was a good season." WOOLWORTH (Includes only U.S. sales) Up 10% to $687 million "Not surprisingly," said Chief Executive Harold E. Sells, "consumer spending showed little or no reaction the October stock market decline." MONTGOMERY WARD Up 5.4% to $757.7 million "Particular strength in electronics, appliances, home and automotive," said Chief Executive Bernard F. Brennan. CARTER HAWLEY HALE (Includes the Broadway) Up 3.1% to $481.5 million. "Sales showed consistent strength throughout December," said Chief Executive Philip M. Hawley.