December Sales Lift Retailers
Shoppers loaded up on discounted merchandise just before and after Christmas, allowing most of the nation’s major retail chains to meet or top December sales targets. But the reduced prices, prompted by the season’s wimpy start, are likely to pinch fourth-quarter profit at many companies.
Sales at stores open at least a year rose an estimated 2.7% in December, according to an International Council of Shopping Centers’ preliminary tally of 77 nationwide chain stores. That was below the forecast of 3% to 3.5%.
“It’s a very uneven performance,” said Michael Niemira, the council’s chief economist.
Stores selling luxury goods stayed ahead of the pack, gaining 10.3% as a group. Wholesale clubs such as Costco Wholesale Corp. and Wal-Mart Stores Inc.’s Sam’s Club finished second, with a 7.3% increase. Sales at discounters rose a better-than-expected 3.2%, while department-store sales rose just 0.6%.
Internet shopping probably swiped some revenue from stores, Niemira said. An increase in the sale of gift cards also may have held down sales; gift-card revenue isn’t counted until the cards are redeemed. Only about 35% of gift cards are cashed in in the two weeks after Christmas.
The December sales figures, when combined with a weak November, gave retailers an estimated 2.3% sales increase for the 2004 holiday season, according to the International Council of Shopping Centers. That’s less than a previously lowered forecast of a 2.5% to 3% gain, and down from a 4% increase in 2003.
November and December are the most important months of the year for retailers, many of whom harvest 25% to 40% of their annual sales during that period. In the just-concluded season, the two months accounted for an estimated 22.2% of sales, the lowest amount on record, the council said.
However, the holiday results helped boost sales estimates for all of 2004 to a 3.8% increase, the strongest performance since 2000, the council said.
That seemed to give investors some solace. A Morgan Stanley index of 38 publicly traded retailers edged up 0.6% on Thursday.
Women’s apparel merchants AnnTaylor Stores Corp. and Talbots Inc. were the big winners, with their shares surging 12.4% and 6.8%, respectively. Target Corp. and electronics retailer Best Buy Inc. were the biggest losers, with their shares falling 5.4% and 4.4%, respectively.
About 70% of the 68 companies monitored by Thomson Financial logged better than expected same-store sales for the month. That was encouraging given that many shoppers, already hammered by record-high gasoline prices this year, were nervous about their financial futures, Niemira said.
Bentonville, Ark.-based Wal-Mart Stores posted a 3% increase, slightly higher than Wall Street’s forecast, but less than last year’s 4.3% run-up. The world’s largest retailer cut prices after disappointing sales the weekend after Thanksgiving. A post-Christmas rush, helped by strong redemptions of gift cards, helped elevate its sales totals. Wal-Mart shares gained 76 cents, or 1.4%, to $54.05 on the New York Stock Exchange.
High-end stores enjoyed another solid season. Neiman Marcus Group Inc. said December sales rose 10.4% as women’s sportswear, designer handbags, shoes and jewelry proved popular with shoppers. Saks Inc. said sales rose 6% thanks to strong demand for lingerie, men’s furnishings and furniture.
Teen apparel merchant American Eagle Outfitters Inc. saw its same-store sales skyrocket 32.8%. Bebe Stores Inc., a Brisbane, Calif.-based seller of slinky clothes for young women, said sales zoomed 28%.
Other California apparel chains reported mixed results.
San Francisco-based Gap Inc., parent of more than 3,000 Gap, Old Navy and Banana Republic stores, said sales slipped 1%; analysts were expecting a 0.1% downturn. Anaheim-based Pacific Sunwear of California Inc. notched a 5.3% increase.
Wet Seal Inc. in Foothill Ranch and Industry-based Hot Topic Inc. continued to struggle, logging declines of 11.8% and 6.2%, respectively. Neither drop was as bad as analysts were expecting.
The less-than-stellar sales, and deeper-than-planned discounting, is bound to affect fourth-quarter earnings for many companies, retail experts said.
“Executives told us they were heavily relying on discounts to move merchandise the last two weeks of the month,” said Ellen Tolley of the National Retail Federation, the industry’s largest trade group. “There’s no question that will impact profit margins.”
Target said its bottom line probably would be hurt by excessive price cutting. The Minneapolis-based discount giant said fourth-quarter profit would be lower than the 94 cents a share that Wall Street was expecting, but didn’t provide a specific figure.
Early in this season, retailers tried to attract consumers with planned promotions such as early-bird specials. While the tactics succeeded in some cases, in general, consumers didn’t get serious until the shopping days dwindled.
In what’s become known in the industry as a game of “retail chicken,” merchants blinked first, slashing prices more than they had intended to as Christmas neared.
“Retailers needed to make quick adjustments to make sure they got a piece of the last-minute sales because this year it was an extremely significant portion of the holiday business,” Tolley said. She estimates that stores rang up 30% of their holiday sales this year in the week before and the week after Christmas.
Some retailers who took the biggest ax to prices in December still reported dreary results. Sears, Roebuck & Co. saw same-store sales slip 3% while J.C. Penney Co. reported a 1.2% decline.
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December sales
Percentage change from a year earlier sales at stores open at least one year
*--* Company % change Bebe +28.0% Nordstrom +9.3 Guess +5.6 Pacific Sunwear +5.3 Target +5.1 Wal-Mart +3.0 Federated +2.3 Limited Brands +2.0 Ross +2.0 Gottschalks Unchanged Gap -1.0 J.C. Penney -1.2 Sears -3.0 May -3.5 Hot Topic -6.2 Wet Seal -11.8
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Sources: Times wire services, company reports
