A Mean Season for Retail

By Leslie Earnest

Jan. 10, 2003 12 AM PT

Times Staff Writer

It’s now official: The holiday shopping season was not only as bad as retailers had feared -- it was even worse.

Despite a strong showing from some California companies, December sales at stores open at least a year -- a key measure of growth -- rose 1%, Bank of Tokyo-Mitsubishi reported Thursday. That was the smallest gain for December in more than three decades.

Combined with flat comparable-store results in November, sales increased 0.5% over the holidays, senior economist Mike Niemira said.

Among those registering disappointing December sales figures were industry giants Wal-Mart Stores Inc. and Target Corp.

“The numbers came in even weaker than our reduced expectations,” said Niemira, whose study is based on the results of 84 retailers nationwide.

Retailers offered a laundry list of reasons for the wimpy performance, including consumers’ concerns about the economy and the absence of a hot new fashion trend that might have pulled more shoppers into malls.

Still, a number of California companies emerged from the fray looking rosy, or at least unscathed.

San Francisco-based Gap Inc., the nation’s largest specialty apparel retailer and parent of the Gap, Old Navy and Banana Republic chains, said comparable-store sales rose 5%, slightly above its expectations, and a significant improvement over an 11% decrease in December 2001.

The results bolstered some analysts’ view that Gap is indeed turning its business around. It was the third month in a row the company posted same-store sales gains after about 2 1/2 years of declines.

Hitting a particularly high note was Anaheim-based Pacific Sunwear of California Inc., which sells many of the surf wear brands made by Southland companies. Its same-store sales jumped 16.1% for the month.

The company said Thursday that fourth-quarter earnings probably would be 43 cents a share, adjusted for last month’s 3-for-2 stock split. That would be a 48% increase over 2001’s fourth-quarter results and well above the 37 cents that analysts surveyed by Thomson First Call were expecting.

Ross Stores Inc., an off-price retailer based in Newark, Calif., reported a same-store sales gain of 6% for December.

At some retailers, business picked up after Christmas as customers swarmed back to the stores bearing gift cards. For instance, Forever 21, a closely held Los Angeles retailer that targets trend-loving females, said it benefited from the trend.

Not all local companies had a merry Christmas.

Wet Seal Inc., a Foothill Ranch-based apparel chain that is heavily reliant on fashion-following teens, said comparable-store sales dropped 19.4% for the five-week period ended Jan. 4. The company blamed slower mall traffic for the downturn.

“December sales were well below our expectations,” Chief Executive Kathy Bronstein said in a statement.

Other retailers catering to trendy teens and young women also struggled.

Columbus, Ohio-based Limited Brands Inc., which operates Limited, Express, Victoria’s Secret and Bath & Body Works stores, said its comparable-store sales were flat for the month. Bebe Stores Inc. of Brisbane, Calif., said same-store sales fell 5% last month after decreasing 4.6% in December 2001.

The poor showing by companies that operate a large number of stores heightens the likelihood of retrenchment for some retailers this year.

If December was tough on a number of specialty apparel retailers, it was hardest of all on department stores, which once again posted the weakest results. Federated Department Stores Inc., which operates Macy’s and Bloomingdale’s, said same-store sales dropped 2.6%.

Nor was the season kind to discounters.

Wal-Mart, the world’s largest retailer, reported a comparable-store sales gain of 2.3% for the month, compared with December 2001. It was the weakest monthly increase for the Bentonville, Ark.-based company in the last two years.

Target Corp., the parent of the Target and Mervyn’s chains, said same-store sales dipped 0.3% as revenue fell below expectations in all divisions. Kohl’s Corp., a Wisconsin-based discount apparel retailer that plans to open 28 stores in Southern California this spring, said same-store sales for the month rose a disappointing 3.3%.

“With a compressed selling season” because Thanksgiving fell late on the calendar last year, “we had expected much stronger comparable store sales in December,” Kohl’s Chief Executive Larry Montgomery said.

Hoping to keep cash registers ringing, many retailers began cutting prices before Thanksgiving and by Christmas had slashed prices 50% to 70% on some merchandise.

Although such tactics can get shoppers’ attention, they also whittle away at profit margins. Many analysts are eager to see the effect that lean prices will have on earnings, which some retailers will begin releasing this month.

Moving into 2003, Niemira said he expects little immediate upswing for the sector, although he predicts same-store sales will rise 2% to 3% as retailers clear out merchandise to make way for spring products.

“The environment’s unlikely to change going forward,” he said. “I suspect the next three months will be very tough for the industry too.”

(BEGIN TEXT OF INFOBOX)

Retail sales

Percentage change in December same-store sales from year-ago period:

Retailer and % change

Pacific Sunwear: +16.1%

Hot Topic: +10.6

Gap: +5.0

Nordstrom: +3.4

Wal-Mart: +2.3

Gottschalks: +1.6

J.C. Penney: +0.4