Retailers Post Disappointing Holiday Sales

Despite an apparent strong start to the holiday shopping season, many retailers posted disappointing December sales results on Thursday, hurt by warm weather and discount-minded shoppers.

For consumers, the good news is that slower holiday sales could mean more discounts in January as companies seek to make room for spring inventory.

But the lackluster sales put the prospects for the fourth-quarter results in jeopardy, with retailers like Chico's FAS Inc. and Cache Inc. warning their earnings would be less than expected.

Some familiar with the industry cautioned that the figures may not tell the entire retail story.

Jay McIntosh, Ernst & Young's Americas Director of Consumer Products, was careful to note that " While many of the retailers have reported disappointing same store sales results, overall retail sales may still grow at a good pace. Several retailers (e.g home improvement, consumer electronics, online) do not report same store numbers and some of those categories did very well this holiday season."

Neverthless, the holiday season did little to ease the misery for some of the sector's chronic underperformers.

Gap Inc. (GPS) said December sales at stores open at least a year fell a sharper-than-expected 8 percent after it resorted to markdowns to drive shoppers into its Gap and Old Navy stores.

The struggling retailer also cut the outlook for its fiscal year, and said it is reviewing Gap and Old Navy brand strategies.

Wal-Mart Stores Inc. (WMT), the world's largest retailer, maintained its fourth-quarter profit forecast, and said December apparel sales were "soft," but by cutting prices it helped boost sales. Warmer-than-normal temperatures led to a slowdown in sales of certain winter items.

The holiday season got off to a strong start during the three-day Thanksgiving weekend as retailers opened their doors early. Customers lined up as early as midnight to take advantage of "doorbuster" bargains.

But after cherry-picking sale items during the Thanksgiving weekend, consumers took a break at the beginning of December, waiting for stores to entice them with last-minute promotions and discounts.

Jewelry retailer Zale Corp. said margins were below expectations "due to more aggressive pricing and increased promotional activity."

Investors keep a close eye on retailers' holiday sales, since the November and December period can account for 20 percent to 40 percent of annual sales.


According to Prudential analyst Stacy Pak, sales in December, 2005, on average, accounted for 52 percent of fourth-quarter sales for specialty apparel retailers.

But last month, the retailers faced what weather tracking firm Planalytics said was the warmest December in 10 years in the United States.

That made it hard for retailers to sell cold weather gear like winter coats or gloves, which could prove beneficial for frugal-minded shoppers in January. Said McIntosh: "Many stores based in the Northeast and Midwest have more winter apparel in stock than they would like and they are likely to be discounting prices to clear that merchandise."

Wal-Mart confirmed that December same-store sales rose 1.6 percent after posting a decline in November sales at its U.S. stores open at least a year. The poor November showing had cast doubt on its fourth-quarter earnings prospects.

But in December, Wal-Mart said sales were strong in electronics and its grocery business.

Wal-Mart aggressively promoted flat-panel televisions during the holiday season, hoping to steal sales of the high-priced items away from consumer electronics retailers like Best Buy Co. Inc. (BBY) and Circuit City Stores Inc. (CC).

Separately, Costco Wholesale Corp. (COST), the largest U.S. warehouse club operator, posted better-than-expected December same-store sales, saying it was helped in part by an extra day in the month due to the timing of the New Year holiday.

Upscale department store operator Nordstrom Inc. also beat forecasts, with December same-store sales rising 9 percent, beating expectations of a 4.5 percent gain, according to a Reuters poll.'s Alexander B. Duncan and Reuters contributed to this report.