Dec. Retail Sales Driven by Discounts; Profits in Question

CHICAGO – Deep December discounts lured holiday shoppers and pushed sales slightly ahead of modest expectations, top U.S. retailers reported Thursday, but a disappointing profit forecast from Wal-Mart raised concerns about the vital fourth quarter.

Teen apparel retailers were among the big winners as cut-price winter fashions flew off the shelves at chains such as Aeropostale Inc. (ARO), while trendy Abercrombie & Fitch Co. (ANF) reported a huge sales jump despite holding back on the markdowns.

Department stores including Nordstrom Inc. (JWN) and Federated Department Stores Inc. (FD) rebounded from a disappointing November with stronger-than-expected sales.

But stores catering to lower-income shoppers struggled as some blamed steep gasoline and heating fuel prices that have cut into consumer spending. Ultra-discounters including Dollar General Corp. (DG) missed sales forecasts, while mid-tier department store chain Kohl's Corp. (KSS) warned of weaker-than-expected profit.

The Standard & Poor's retail index edged up 0.3 percent in early trading, with Aeropostale among the top gainers while Kohl's dropped 2.3 percent.

"The teen specialty space blew the cover off the ball again," said Ken Perkins, president of research firm Retail Metrics. "They had a fabulous month."

Overall, Perkins said sales at stores open at least a year rose 3.4 percent, better than the 3.1 percent that analysts had expected. Some 64 percent of retailers beat expectations, although there were notable misses from Wal-Mart Stores Inc. (WMT), Kohl's, AnnTaylor Stores Corp. (ANN) and others.

Wal-Mart, the world's biggest retailer, said its fourth-quarter profit would likely reach only the low end of its forecast after a disappointing December. Its shares dropped 0.8 percent in New York Stock Exchange trading.

Wal-Mart posted just a 2.2 percent increase in December sales at U.S. stores open at least a year -- a key measure known as same-store sales, but forecast 3 percent to 5 percent growth for January.

January has become an important month for retailers with the rising popularity of gift cards. Retailers record revenue from the cards when they are redeemed, not when they are sold.

CIBC World Markets analyst Peter Benedict trimmed his fourth-quarter profit forecast for Wal-Mart by 2 cents per share to 82 cents -- the low end of Wal-Mart's forecast. Still, he said the retailer's January sales forecast was a bit stronger than he had expected.

Rival Target Corp. (TGT) topped expectations with a 4.7 percent same-store sales increase for December, and forecast 3 percent to 5 percent growth for January.

Retailers reported sluggish demand in the first half of December as shoppers held out for last-minute bargains. Costco Wholesale Corp. (COST) said same-store sales were up 4 percent or 5 percent for the first three weeks, but jumped 16 percent during the week of Christmas.

Teen-oriented chains showed the strongest growth in the retail sector, with Aeropostale and American Eagle Outfitters Inc. (AEOS) reporting surprisingly strong sales growth on Wednesday afternoon. Aeropostale, which was among the most aggressive discounters this holiday season, also raised its fourth-quarter profit forecast.

Nordstrom was among the best performers with a 7.7 percent same-store sales gain, more than double what Wall Street had expected.

Limited Brands (LTD) reported improvement at its long-struggling Express clothing chain, but said January sales would be roughly flat with a year earlier.

Rival Gap Inc. (GPS) reported a worse-than-expected 9 percent drop in December same-store sales as it struggles with poorly received fashions at its namesake and Old Navy chains, but the company said full-year profits were trending toward the upper end of expectations.