Retailers Gird for Disappointing December Sales

NEW YORK--It doesn't look like the new year will greet retailers on a welcome note.

Retailers, scheduled to report their critical December same-store sales on Thursday, will likely show disappointing results hurt by factors including declining consumer confidence tied to Washington's fiscal-cliff uncertainty, analysts said Monday.

Consensus estimates for December, according to Retail Metrics data, fell another 0.2 of a percentage point on Monday for both same-store sales and same-store sales excluding drug stores--to increases of 1.9% and 3.7%, respectively. Retail Metrics noted that the average analyst estimate has declined by 0.6 of a percentage point from the start of the month.

"This is significant downward move to sales estimates for the most important month of the year," said Retail Metrics president Ken Perkins, noting that December alone represents about one-fifth of total annual sales.

The gain would mark retailers' worst December performance since 2008, Mr. Perkins told MarketWatch.

With two extra days between Thanksgiving and Christmas this year, retailers, without must-have items to entice shoppers, also experienced a big lull following consumers' initial fervor seen over Thanksgiving weekend as more procrastinated in their holiday shopping, analysts said.

Meanwhile, a bout of colder weather in late December didn't look to salvage higher-than-average temperatures seen earlier in the month that hurt demand for heavy coats and other cold-weather merchandise. December has shaped up to be the second-warmest in more than 21 years for the U.S. as a whole, according to Weather Trends International.

Consumers' mood to visit malls and shop also was hurt by the mass shooting at a Newtown, Conn., school, they said.

The dampened mood is cutting into estimates across the discount, department-store and apparel segments. Among individual retailers, analysts have lowered consensus estimates on Gap Inc. (GPS), Kohl's Corp. (KSS) and Macy's Inc. (M) as well as Limited Brands Inc. (LTD) , the parent of Victoria's Secret and T.J. Maxx parent TJX Cos. (TJX), Retail Metrics data showed.

"Short of plan"

Retailers had hoped they would make up business in December after Hurricane Sandy, the superstorm that devastated parts of the Northeast, hurt their November receipts.

"We believe December same-store sales trends fell short of plan," said UBS analyst Michael Binetti, who cut estimates on Nordstrom Inc. (JWN) besides on Macy's and Kohl's.

A late-month "sales rally wasn't sufficient to hit planned sales targets. Weather-sensitive Kohl's has the most [sales] downside. Macy's strong e-commerce business and aggressive extended hours pre-Christmas strategy helped fight sluggish mall traffic in the month," Mr. Binetti wrote.

Analysts also cut their fourth-quarter sales view on struggling J.C. Penney Co. (JCP), which doesn't report monthly sales, to a 24.9% drop following a 26% decline in the third quarter, Retail Metrics data showed.

Meanwhile, electronics retailer Best Buy Co. (BBY), facing the possibility of a buyout pending its holiday-sales results, was expected to report a 3% fourth-quarter drop, Retail Metrics data showed.

Still, while sales may have suffered a setback, analysts said better inventory control and mostly planned promotions so far in the season, coupled with lower cotton costs, are likely going to keep retailers' profit margin mostly intact.

It is a "ho-hum holiday, but margin cushion [is] to allow most to meet [per-share profit] expectations," said UBS analyst Roxanne Meyer, adding chains such as Abercrombie & Fitch Co. (ANF) and Urban Outfitters Inc. (URBN) were "notably less promotional" in December.

She cut her sales estimates on Aeropostale Inc. (ARO), Gap and Victoria's Secret.

Analysts have also cut their estimates on discounter Target Corp. (TGT), after the company's much-touted designer collection in partnership with Neiman Marcus failed to generate expected demand. Target marked the collection off by 50% just about three weeks after the launch at the start of December.

Analysts also said Target's P-Fresh expanded food assortment and 5% discount given on its Target card purchases provided less of a lift during the holiday period because spending is more geared toward non-essential items during the holidays.

"We expect [Target] sales remained sluggish in aggregate over the holidays amidst a competitive backdrop," said Robert W. Baird & Co. analyst Peter Benedict.

On the other hand, larger rival Wal-Mart Stores Inc. (WMT). which doesn't report monthly sales, is regarded as a holiday winner.

"We believe Walmart had a strong holiday season," said Gilford Securities analyst Bernard Sosnick. The company "had its best Black Friday and that layaways were greater than a year ago.

"Food and consumables sales benefited from sharper pricing...apparel departments had a good sell-through across much of the U.S."

Andria Cheng; 415-439-6400; [e-mail]

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