Heavy discounting and slow traffic weighed on retailers'
December sales results, but Costco Wholesale Corp. (COST) was among
the few that bucked the trend.
The wholesale club reported sales at stores open at least a year
rose 5% for the month, topping expectations for a 2.6% increase.
Among the stronger performing categories were garden, automotive,
apparel, small appliances and home furnishings. The consumer
electronics category posted improvement from recent months, but the
metric still declined slightly.
A number of retailers have offered disappointing holiday updates
in recent days, suggesting the critical holiday period was marked
by heavy promotions, especially for apparel and consumer
electronics.
Although sales and store traffic appeared to pick up at the
beginning of the Thanksgiving holiday weekend, shoppers took a
break and didn't start buying in earnest again until the week
before Christmas.
At the same time, online sales were stronger than expected, but
Ken Perkins of Retail Metrics said shopping on the web likely
didn't expand the overall spending pie so much as shift how and
where that money was spent.
Driven largely by Costco, the eight retailers tracked by Thomson
Reuters that have reported so far recorded a 2.7% increase in
December same-store sales, or sales at stores open at least a year.
Gap Inc. (GPS) is scheduled to report after the market closes.
Thomson Reuters projects the nine companies to post 1.9% growth,
compared with a 7.2% increase a year earlier.
Many retailers, including big-box retailers Wal-Mart Stores Inc.
(WMT) and Target Corp. (TGT), no longer report monthly sales data,
making it difficult to gauge the health of the entire industry from
the few that still report.
Among the retailers tracked by Thomson Reuters that missed sales
estimates for the month were L Brands Inc. (LB), Zumiez Inc. (ZUMZ)
and Buckle Inc. (BKE).
The highly promotional retail environment led a number of other
retailers, including home-furnishings retailers Bed Bath &
Beyond Inc. (BBBY) and Pier 1 Imports Inc. (PIR), and apparel
retailers American Eagle Outfitters Inc. (AEO), L Brands, Zumiez
and Cato Corp. (CATO), to lower earnings outlooks.
"One thing that is going to be consistent across all retailers
is that margins will be deeply under pressure when they report
earnings for the holiday period," said Joel Bines, managing
director and co-head of AlixPartners's retail practice.
Among consumer electronics and appliance retailers, HHGregg Inc.
(HGG) said same-store sales for the holiday season are expected to
fall in the double-digits. It pointed to significant weakness in
electronics sales, which might not bode well for larger peers like
Best Buy Co. (BBY).
Even the rest of the discount sector didn't see the same
strength as Costco.
Regional discounter Fred's Inc. (FRED) posted a 1.4% increase in
same-store sales, but Chief Executive Bruce Efird said that rise
was driven mainly by the pharmacy department, while discretionary
categories in general merchandising fell short of plan. Mr. Efird
also said Fred's promotional strategy, which was centered on Black
Friday, didn't produce the gains it expected.
Discount retailer Family Dollar Stores Inc. (FDO) wasn't spared
either. The company lowered its earnings expectations for the
fiscal year, pointing to weaker sales in its first quarter.
The disappointing sales weren't limited to the U.S. Three of the
biggest names in U.K. grocery and fashion--Tesco PLC, Marks &
Spencer Group PLC and Wm. Morrison Supermarkets PLC--reported sales
declines over the holiday period, blaming the weak market or
extensive promotions for squeezed margins and low profit
forecasts.
One relatively bright spot was Macy's Inc. (M), which reported
same-store sales increased 4.3% for the holiday season as Chief
Executive Terry J. Lundgren said the company's merchandise
generated a positive response from customers. Struggling peer J.C.
Penney Co. (JCP) said it was "pleased" with its holiday sales
performance but didn't disclose any specific figures, which rattled
investors and sent its shares sharply lower.
"Holiday sales across the industry were a mixed bag, but on the
earnings line, it's going to be a very challenging season," Mr.
Bines from AlixPartners said.
Write to Anna Prior at anna.prior@wsj.com
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