Major retailers reported that comparable sales (for stores open at least a year) rose 3.1% over December 2009, according to tallies by Thomson Reuters, which had forecast 3.4% growth. Most analysts had forecast an increase of 3% to 4%. The biggest disappointment, according to Thomson Reuters, were teen apparel retailers, where sales dropped 2.5%, instead of growing 3.5% as estimated.
Most merchants had expected that shoppers would unleash some pent-up demand in the third holiday season since the onset of recession, feeling the economic downturn is bottoming out. But the results show that mainstream consumers remain bargain shoppers, despite increases in luxury spending and healthy results among upscale department stores.
The sales numbers were a tale of haves and have-nots. While discounters such as BJ's Wholesale Club (BJ) and Costco Wholesale (COST) disappointed, high-end department stores had strong sales. Nordstrom (JWN) posted comparable sales up 8.4%, and Saks (SKS) was up 9.8%.
After being lured into shops in November by early Black Friday promotions, "December was a different ballgame for retail," noted Brian Sozzi, retail analyst at Wall Street Strategies. Price-conscious shoppers turned back to cherry-picking deals and forced retailers to lay out more offers, he explained in a note to investors.
For example, Limited Brands (LTD) said that while comparable sales were up 5% in December, they would have risen 7% if the Victoria's Secret semi-annual sale had started in December, as it did last year. Limited said it expects the sale will add about five percentage points to its January sales instead.
Kohl's (KSS) was one of the few retailers to upgrade its guidance, after posting a 3.9% sales increase in December. It now expects to report fourth-quarter earnings of $1.62 to $1.66 per share, up from $1.58 to $1.66 previously. And it raised its fiscal year earnings forecast to range of $3.61 to $3.65 from $3.57 to $3.65.
Sticking With Their Forecasts
Many retailers had planned for a highly promotional holiday, and several reaffirmed their quarterly targets for the year-end period, which generates much of the year's profits. Even Gap (GPS), which saw both traffic and sales drop in December after an encouraging start in November, restated its guidance of $1.77 to $1.82 per share in the fourth quarter.
Target (TGT) had a weak 0.9% increase in comparable sales in December, due to gift-buying moving earlier in the holiday season, but it's sticking with its fourth-quarter guidance. The discounter restated its forecast for 2% to 4% sales increases and said it expects to hit the First Call earnings estimate of $1.40 per share.
Sozzi cautioned that "over-exuberance was baked into stock prices," but shoppers were being more realistic in their spending. He figures that investors will be sour on retail until the fourth-quarter results begin to flow in February and merchants give more information about plans for 2011.
"The fact is a happy, happy holiday season was priced into stock valuations," he wrote. "We received a happy holiday season, minus the extra 'happy.'"