This holiday, stores didn’t get what they wished for
In what has become a less-than-heartwarming holiday tradition, consumers and retailers played “retail chicken” again this year.
Shoppers won.
They swarmed malls at the end of the month, but only after stores slashed prices to snag them. As a result, retailers turned in mediocre December sales reports Thursday, and a slew of them lowered profit expectations for the fourth quarter or the year.
Thomson Financial said 53% of the retailers it tracks missed expectations when reporting sales at stores open a year or more, a key measure of growth.
Several California-based chains posted results that ranged from slightly disappointing to downright dismal, including Gap Inc., the nation’s largest specialty apparel retailer, gadget seller Sharper Image Corp. and Pacific Sunwear of California Inc. On the other hand, trendy Los Angeles clothing seller Guess Inc. continued to shine.
“I would consider it a somewhat disappointing holiday,” said Ken Perkins, president of research firm Retail Metrics. “Spending was somewhat subdued.”
The results beat the International Council of Shopping Centers’ predictions, but only after the influential trade group trimmed them. At the start of the month, the group was forecasting sales growth of 2.5% to 3.5%. But after the first three weeks, it lowered its expectations to 2.5%.
When the month concluded Sunday, sales at stores open a year or more rose 3.1% from a year earlier, the trade group estimated.
Combined with November’s wimpy 2.1% gain, December’s tally brings the two-month holiday season advance to 2.8%.
Although the stocks of December’s big winners and losers moved predictably, investors overall didn’t appear depressed by the news. A Morgan Stanley index of 35 national retail chains rose 0.3% in Thursday’s trading.
Better-than-expected results among a few big players -- including luxury sellers -- helped lift same-store sales, said Michael Niemira, chief economist for the shopping center group, which tallies the results of 59 nationwide chains. Consumers gravitated to stores where penny-pinching is the norm and to places where price tags get barely a glance.
Saks Inc., for example, logged an 11.1% gain, almost twice what analysts were expecting, and Nordstrom Inc. recorded a 9% increase, far better than the 4.3% that was predicted.
Costco Wholesale Corp. advanced 9%, compared with the expected 5.7%, and Dollar General Corp. rose 7.1%, well above the forecast 3.9%.
“That’s one of the dichotomies in the December story line,” Niemira said.
Weather also played a role, helping to push down sales at apparel stores, which collectively posted a 0.9% decline. It was the warmest December in five years, according to Weather Trends International. That made it hard for shoppers to work up enthusiasm for cozy coats and snuggly sweaters. By comparison, 2005 saw the coldest and snowiest December in five years.
Gap has been skidding in every kind of weather.
The parent of nearly 3,200 Gap, Old Navy and Banana Republic stores posted an 8% drop, 3 percentage points worse than expected. The company has recorded same-store sales gains in two of the last 31 months. Only Banana Republic advanced last month, by 2%.
As a result, Gap slashed profit expectations for the year, saying it hoped to deliver earnings of 83 cents to 87 cents a share, compared with the previous forecast of $1.01 to $1.06.
“We are clearly disappointed with Gap and Old Navy’s holiday sales and overall performance for the year,” Chief Executive Paul Pressler said in a statement. The company is reviewing its strategies at its two largest chains, he said.
Another San Francisco-based company, Sharper Image, was the month’s biggest loser, posting a 20% sales slide, slightly more than expected.
Brisbane, Calif.-based Bebe Stores Inc. advanced 4%, but that was a third less than expected. Citing lower-than-expected sales and higher markdowns, the company trimmed its profit projection for its fiscal second quarter. Bebe forecast per-share earnings of 25 cents to 29 cents in the period, down from its earlier prediction of 31 cents to 35 cents.
That irked investors, who shaved nearly 10% off the price of Bebe’s shares. The stock closed at $17.27, down $1.82.
Although some retailers planned in advance for 50%-off sales, others were forced to mark down merchandise more than expected in a standoff with shoppers, who were willing to wait until the last minute to get a deal.
“Consumers have just been trained: Wait it out. They’ll cut prices,” Perkins said.
Wal-Mart Stores Inc. announced early in the season that it would be cutting prices -- a move that forced other merchants to follow suit. But the world’s largest retailer logged a 1.6% increase, its lowest December gain since 2000, when it advanced 0.3%. That followed a 0.1% decline in November, the discounter’s first same-store sales dip since April 1996.
Competitor Target Corp. fared well, advancing a slightly better-than-expected 4.1%.
Sales at department stores rose 3.6%, the lowest increase since August. Macy’s parent Federated Department Stores Inc. notched a 4.4% sales gain, less than the 5.5% that was expected, but said in a report that sales were “somewhat softer than expected.”
Teen retailers, as usual, turned in mixed results.
Guess’ sales rose 13%, almost twice what was expected, sending its stock up $2.73 to $67.43, a 52-week high. Anaheim-based Pacific Sunwear, meanwhile, reported a 3.2% drop, slightly more than anticipated.
Wet Seal Inc. in Foothill Ranch said its 1.3% gain was “somewhat below our expectation.” But a “double-digit” rise in gift card purchases should help boost sales this month, Chief Executive Joel Waller said in a statement. Retailers cannot record gift card purchases as sales until they’re redeemed.
Holiday sales are particularly important for retailers, which typically gather 20% to 40% of their annual revenue in November and December.
This holiday season had some advantages for retailers. Because Christmas fell on Monday, shoppers had a full weekend to take advantage of deals that materialized as merchants wrangled to pull shoppers into stores.
On the other hand, economists have said the housing slump and gasoline prices were a drag on spending this year.
Gift cards helped fuel sales in the days after Christmas as consumers went back to the malls to make returns and scout for fresh or further marked-down merchandise. Gift cards could drive about 20% of this month’s sales, the shopping center group said.
Industry profits will come more sharply into focus in February, when retailers start filing their fiscal fourth-quarter earnings reports.
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No holiday
Year-over-year percentage change in December sales at stores open at least a year
*--* Company % change Guess +13.0% Nordstrom +9.0 Federated +4.4 Target +4.1 J.C. Penney +2.6 Ross +2.0 Wal-Mart +1.6 Wet Seal +1.3 Pacific Sunwear -3.2 Hot Topic -5.1 Gap -8.0 Limited Brands -10.0
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Sources: Times research, company reports
Los Angeles Times
