Retailers Report Soft December As Fiscal Cliff Weighs

Cautious U.S. consumers restrained their spending in December, making for a generally mixed holiday season for retailers at what is usually their busiest time of the year.

A reluctance to spend as the fiscal cliff loomed held purchasing in check, compounded by Hurricane Sandy in the Northeast and a lack of the kind of cold weather that generally spurs buying. Among the better performers last month were Costco Wholesale Corp. (COST), Gap Inc. (GPS) and Macy's Inc. (M), while Target Corp. (TGT), Limited Brands Inc. (LTD) and some apparel retailers were weak.

"It was a very complicated month, with all sorts of events that threatened fragile expectations," said Barbara Kahn, marketing professor at the University of Pennsylvania's Wharton School. "Online was a saving grace for some of the retailers as people shift in that direction."

The 17 retailers tracked by Thomson Reuters are expected to report 3.3% growth in December same-store sales, or stores open at least a year. The figure compares with 4.2% a year ago.

Target reported flat comparable-store sales, when a 0.8% rise was expected, but said it sees fourth-quarter earnings meeting or somewhat exceeding the low end of its expectations.

"December sales were slightly below our expectations, as strong results late in the month did not completely offset softness in the first three weeks," Chief Executive Gregg Steinhafel said.

Macy's had a comparatively good month as same-store sales rose 4.1% in December, just passing expectations for 4%.

"Last month was our fourth consecutive December with same-store sales growth, which is indicative of the sustainability of our key business strategies," Chief Executive Terry Lundgren said. "While the rate of growth was somewhat less than we had expected in the first two months of the fourth quarter, it came amid some significant headwinds from uncertain economic news and the lingering effects of Hurricane Sandy."

Macy's said it benefited from its "omnichannel" strategy that relies on both stores and online avenues.

Gap reported that December same-store sales grew 5%, while analysts expected 3.5%. All three North American brands--Gap, Banana Republic and Old Navy--posted comparable sales growth, while international reported a 6% decline. Gap also announced it approved a new $1 billion share repurchase program.

Costco remained a standout, posting a gain of 8% in U.S. same-store sales minus gasoline; analysts expected a 5.3% rise. The mass merchant said its sales for the month benefited by about 2% from an extra selling day because of the timing of the New Year's holiday.

Best performing areas for Costco included Texas, Southeast and Midwest. Costco's softlines category posted some of the strongest comparable sales growth--rising in the low to mid-teens range--as small appliances, housewares and women's apparel did well. Stores also were busier, with comparable traffic frequency posting a slightly more than 5% gain.

Limited Brands, operator of Victoria's Secret and Bath & Body Works, reported a rare miss, posting a same-store sales increase of 3%, when 4.5% was expected. Flat results at Victoria's Secret more than offset the strong 7% growth at Bath & Body Works. While the company said merchandise margins rose from a year earlier, the increase was "below expectations."

Apparel retailer Cato Corp. (CATO) posted a 7% drop in same-store sales when a 1% decline was projected. "December same-store sales results were well below expectations and our year-to-date trend," Chief Executive John Cato said, as the company lowered its fourth-quarter guidance.

Teen retailer Wet Seal (WTSLA) posted a 9.7% decline in same-store sales when a 5% decline was expected and said its fourth-quarter loss will be at or near the low end of its initial projection. The disappointing December showing was driven mainly by lower-than-expected transactions throughout the month, the company said.

December same-store sales at fellow teen retailer Buckle Inc. (BKE) grew 1% compared to the year-ago period, while a decrease of 0.3% was expected. Overall, shoppers appeared to spend more, with the average transaction value rising about 5.5%, the company said.

Zumiez Inc. (ZUMZ), a teen retailer with a focus on action sports apparel, equipment, and accessories, posted a 1% decrease in December same-store sales, when a 3.6% decline was expected.

The so-called fiscal cliff loomed large in December, promising a package of spending cuts and tax increases for the new year if lawmakers could not work out an alternative. U.S. policy-makers reached a compromise in their budget dispute and struck a deal to avoid the worst of the fiscal cliff earlier this week.

Write to Karen Talley at [e-mail]

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