SHLD pinning growth on law-aways at Kmart, the crowning jewel of absolute garbage displayed in a dumpster
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By Andria Cheng
NEW YORK (Dow Jones) - The recession, job losses that could be the worst in about 60 years and the worst consumer confidence on record joined forces to pummel retailers in December, hurting even industry leader Wal-Mart Stores Inc.
Wal-Mart and other retailers from Macy's Inc. (M), Gap Inc. (GPS) and Limited Brands Inc. cut their profit outlooks. Steep discounts during the holidays of as much as 90% to lure reluctant consumers only ate into profit margins of many merchants.
Wal-Mart Stores Inc. (WMT) sales rose 1.7%, missing the Wall Street estimates of a 2.8%. The company cut its fourth-quarter profit projection to as much as 94 cents a share from a previous forecast of as much as $1.07.
Wal-Mart, a Dow Jones Industrial Average component, saw its shares down 8.6% to $50.78, their worst drop since February 2000. Its decline dragged down the rest of the markets. The S&P Retail Index (RLX) fell 1.4%.
In addition to soured consumer sentiment, retailers' sales also were hurt by pre-holiday snowstorms in regions such as the Northeast, while the post-Christmas boost from bargain hunters proved too little, too late, analysts said.
"The current economy remains challenging for all businesses, and retailers have already seen customers pull back on discretionary spending," said Wal-Mart Chief Financial Officer Tom Schoewe. "Consumers are very focused on value and necessities."
The outlook for January and at least the first half of this year remains tough, with dismal prospects for the economy. Weaker gift-card sales this holiday season also threatened to cut off a traditional lift to this month's sales as shoppers redeem their cards. A lack of compelling spring fashions means shoppers trained to expect discounts will continue to balk at paying full price for items. A wave of bankruptcy filings may follow the 2008 filings of retailers from Linens 'n Things to Circuit City.
More store closings to come
"I am seeing the announcement of major restructuring plans, centralized in store closures," said Brian Sozzi, an analyst at Wall Street Strategies. He added all but one among 38 retailers he tracked posted negative sales.
Results at both Wal-Mart U.S. and Sam's Club missed expectations as the company blamed weather that led to the closure of 40 stores the week before Christmas. Sam's Club sales were especially hard hit, rising 0.1%, missing estimates of a 3.6% gain. Wal-Mart expects January sales to be between flat and up 2%.
The company had been a Wall Street darling with its value message seen by analysts as the key to keep it outperforming the rest of the sector.
The industry overall registered a 0.9% drop in sales, their third straight monthly decline, during the month, better than expected, after retailers' steep discounts, according to Retail Metrics.
December is the biggest month of retailers' fiscal fourth quarter, their biggest profit and sales-generating season.
Wal-Mart's rival Target Corp. (TGT) said sales were down 4.1%. Target said it lowered prices to gain market share, and warned those promotions would hurt its fourth-quarter profit.
Following the same retail pattern in the past year, retailers of discretionary merchandise still fared the worst.
Luxury's nightmare
Luxury retailer Saks Inc. (SKS) sales tumbled 20% and the company warned that its fourth-quarter gross margin rate will decline significantly after steep discounts and promotions. Rival Nordstrom Inc. (JWN) said sales declined 11%. The retailer said it won't meet its previous fourth-quarter profit outlook.
Macy's Inc. sales dropped 4%, better than expected. But it lowered its profit forecasts after it took incremental markdowns to bolster sales. The department store said it will shut 11 stores. J.C. Penney Co. (JCP) sales fell 8.1%, beating estimates, also after aggressive promotions. It forecast a low double-digit decline in January sales.
Sears Holdings Corp. (SHLD), in a rare bright spot after lagging its rivals, gave profit forecasts that exceeded analysts' estimates after its layaway program helped ease the sales decline at its Kmart chain, which was down 1.1% compared with the year-to-date trend of a 6% drop. Sears' U.S. department stores still struggled with a sales drop of 13%. Sears shares shot up 17%.
Gap Inc. (GPS), the largest U.S. clothing chain, saw its sales declining 14%. Abercrombie & Fitch Co. (ANF) sales tumbled 24%, hurt by its strategy not to discount on in-season products, according to analysts. Its low-priced rival Aeropostale Inc. (ARO), with steep discounts across its stores during the holiday, posted an unexpected 12% gain in sales.
"Customers waited until late in the month to shop and we faced a highly competitive promotional environment," said Sabrina Simmons, Gap's chief financial officer. "We responded aggressively across our brands with compelling offers, which helped us clear through a significant amount of holiday inventory, but resulted in merchandise margins below last year."
Gap rival J. Crew Group Inc. (JCG) also lowered its forecast on lower sales trends.
Limited Brands Inc. (LTD) estimates that fourth-quarter earnings will be between 55 and 70 cents a share, lower than the forecast of 90 cents a share in a survey of analysts by FactSet Research. The company projected January sales to decline in the mid-to-high teens.
(END) Dow Jones Newswires
01-08-09 1216ET
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