The Wall Street Journal-20080111-Retailers Post Tepid Growth- Macy-s- J-C- Penney See Sales Decline- Some Bright Spots
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Retailers Post Tepid Growth; Macy's, J.C. Penney See Sales Decline; Some Bright Spots
U.S. retail sales last month weakened, especially among clothing chains, but weren't the disaster some predicted.
The report capped a year that turned out to be retailers' worst in at least four years and a holiday season that hit a five-year low. Still, a sales gain for the industry as a whole in December -- albeit slight -- lent some reassurance that consumers continue to spend.
The decline prompted a number of retailers, led by Kohl's Corp., to chop fourth-quarter earnings projections. Investors, however, pushed up depressed share prices in a relief rally as January inventories appeared tame and a weak U.S. dollar continues to boost international results.
The results confirmed pre-holiday worries that falling home prices and high gasoline prices would crimp consumer spending. Retail Metrics Inc.'s index of December same-store sales rose a scant 0.4%, compared to a 3.2% gain the previous year. Comparisons, in part, were skewed by December's reporting period having one less week of post-Thanksgiving sales than in 2006.
Lumping November and December together, same-store sales rose a less severe 1.7%, said Retail Metrics. The results weren't uniformly poor and don't include some stronger retailers. "It's generally a bit weak but the sky is not falling," said Stephen J. Hoch, professor of marketing at University of Pennsylvania's Wharton School. Consumer spending has remained resilient and "will hang in there," he said.
Sarah Henry, a retail analyst at MFC Global Investment Management, called the December sales "better than feared." Hardest hit were clothing and high-fashion chains. Ms. Henry said "it was probably as much fashion as the economy. There was a lack of compelling products" in stores. Shares of J.C. Penney Co., Sears Holdings Corp., Target Corp. and Wal-Mart Stores Inc. all rose.
Markdowns at department and clothing chains should benefit January bargain-hunters at the expense of store profits, retailers conceded.
J.C. Penney posted a 7.5% same-store sales decrease, greater than its forecast mid-single-digit decline. It said jewelry and big-ticket home goods sold poorly. The firm sees a "mid-single digit" drop this month and forecast earnings in the fiscal fourth quarter ending Feb. 2 near the low end of its $1.65 to $1.80 a share profit expectations.
Macy's Inc.'s same-store sales fell a worse-than-projected 7.9%, due in part to a calendar shift that moved more holiday sales into November. The company forecast a 4% to 6% same-store sales drop this month.
Kohl's reported an 11% fall, versus its forecast for a mid- to high- single-digit drop, and said price slashing would cut fourth-quarter profit by roughly 10%. It now projects per-share profit of $1.30 to $1.34, down from $1.45 to $1.51.
The weakness among clothing and jewelry was offset elsewhere by sales of food, health care and pharmaceuticals. Among major discount chains, Wal-Mart Stores said grocery, electronics and pharmacy businesses gained while home decor and apparel sales slipped.
Wal-Mart posted a 2.4% gain in U.S. same-store sales, compared with its 1% to 3% forecast and said it expects to deliver earnings in the fiscal fourth quarter ending Jan. 31 within a forecast range of 99 cents to $1.03 a share. The world's largest retailer projected January same-store sales up about 2%, continuing a gradual improvement.
Target reported a 5% decline in same-store sales on weakness in jewelry, toys and home-goods sales. Still, the results were slightly better than investors were expecting. It said food and health-care items were better sellers. On a calendar adjusted basis, same-store sales fell 0.6%, compared to a late December forecast of a 1% drop to a 1% gain.
The Minneapolis retailer's inventories were in "very good condition" at month's end, but the company said fourth-quarter profit wouldn't match the $1.29 per-share profit of last year. Late Wednesday, it said Chief Executive Robert J. Ulrich will retire May 1 and be succeeded by President Gregg W. Steinhafel.
Costco Wholesale Corp. reported a stronger-than-expected 7% rise in December same-store sales. It posted a 5% U.S. gain, one percentage point of which was due to rising gasoline prices. Same-store sales internationally jumped 16% because of the slumping dollar; excluding that, the increase would have been 5%.
Another bright spot was TJX Cos., parent of off-price retailers' Marshalls and T.J. Maxx. It raised its fiscal fourth-quarter earnings view, crediting tight inventory controls and expense management. It now forecasts a per-share profit of between 60 cents and 63 cents, compared with 51 cents a year ago.
Video-game retailer GameStop Corp. boosted its fiscal fourth-quarter expectations amid a 45% surge in software sales.
Among those chains hit by falling demand, Limited Inc., parent of Victoria's Secret, posted an 8% drop in same-store sales last month, double the decline analysts were expecting.
