Wrapping up one of the weakest Christmas seasons ever, Retailers report dismal December sales.

Figures confirmed fears that the holiday season was the weakest since at least 1969, the malaise cut through practically all areas from kitchen gadget stores to jewelry purveyors and teen apparel retailers.

The deep discounts that began well before the official start of the holiday season spurred a number of merchants to cut their earnings outlooks, fueling more concerns about the health of the industry.

The International Council of Shopping Centers-Goldman Sachs same-store sales tally dropped 1.7 percent for December, worse than the already reduced estimate for a 1 percent decline. That means that same-store sales for the November-December period dropped 2.2 percent, making it the weakest holiday period since at least 1969, when the index began.

For the calendar year, retail sales rose on average a modest 1 percent, the weakest year since at least 1970, according to Michael P. Niemira, chief economist at the ICSC. The tally is based on same-store sales, or sales at stores opened at least a year, which are considered a key indicator of a retailer’s health.

Wal-Mart same-store sales rose 1.2 percent. Excluding the impact of declining gasoline prices at the pump, the gain was 1.7 percent.

Target Corp., which has been stumbling because its merchandise focuses more on nonessentials like trendy clothes, announced a 4.1 percent decline in same-store sales, better than the 9.1 percent drop that Wall Street analysts predicted.

Costco Wholesale Corp. reported a 4 percent decline in same-store sales, but excluding the impact of lower gas prices and currency fluctuations, it actually posted a 4 percent gain.

Sears Holdings said its December same-store sales dropped 7.3 percent.

Macy’s Inc. reported that same-store sales fell 4 percent in December, less than the 5.3 percent decline that analysts had expected.

J.C. Penney Co.’s same-store sales within its department store division fell 8.1 percent, better than the 10.3 percent decline analysts had expected.

But luxury stores fared far worse as affluent shoppers sharply cut back on buying Gucci handbags and other status goods, spooked by the financial meltdown that led to massive layoffs on Wall Street and shrinking investment portfolios.

Saks Inc. posted a 19.8 percent drop for the month, worse than the 10 percent decline Wall Street expected.

Neiman Marcus Group Inc. suffered a 27.5 percent decline in same-store sales.

Limited Brands Inc. posted a 10 percent drop, larger than the 7.8 percent decline analysts predicted. The company also lowered its fourth-quarter earnings outlook.

Gap Inc. suffered a 14 percent drop in same-store sales, worse than the 9.3 percent decline that analysts had expected. It also cut its earnings outlook.

Teen apparel retailers also suffered through a miserable holiday season. Wet Seal Inc. reported a 12.5 percent decline, larger than the 11.9 percent analysts expected, as its Arden B chain dragged down results. Abercrombie & Fitch Co. reported a 24 percent drop, in line with the 23.5 percent drop analysts had forecast.

Kitchen gadget chain Williams-Sonoma Inc., which didn’t break out December figures, said its same-store sales dropped more than 24 percent for the eight-week period ended Dec. 28 and warned its fourth-quarter profit will likely come in at the low end of expectations.

Wal-Mart Slashes Profit Forecasts

Bloomberg is reporting Wal-Mart Leads Retailers in Slashing Profit Forecasts.

Wal-Mart Stores Inc., Macy’s Inc. and Gap Inc. slashed earnings forecasts after the worst holiday- shopping season in 40 years squeezed retail profit margins.

Wal-Mart, the world’s biggest retail chain, said today that fourth-quarter profit will miss its earlier forecasts after sales at stores open at least a year rose 1.7 percent last month, missing analysts’ estimates.

“That does not bode well going into January-February, where we go into a lull period and there’s really no reason to buy until spring,” Adrienne Tennant, an analyst at Friedman, Billings, Ramsey & Co. in Arlington, Virginia, told Bloomberg Television.

Rising unemployment and tightening credit may have spawned the worst holiday-shopping season in four decades. To attract customers, some U.S. retailers cut prices by as much as 70 percent, which threatens to erode their profit margins in the fourth quarter, the most important of the year, and into 2009.

“The margins are getting killed,” Tennant said.

U.S. December same-store sales dropped 1.7 percent, the International Council of Shopping Centers reported today. The New York-based trade group said sales declined 2.2 percent in the last two months of the year, the biggest such drop since it started tracking the data in 1970.

Sears Holdings Corp., the largest U.S. department-store company, forecast fourth-quarter profit that exceeded analysts’ projections. Its sales fell 7.3 percent in December. The shares climbed $7.08, or 17 percent, to $47.63 at 10:38 a.m. New York time on the Nasdaq Stock Market.

Macy’s cut its fourth-quarter profit forecast to as little as 90 cents a share from a previous minimum of $1.10. It also announced the closing of 11 of its 859 stores.

Nordstrom Inc., citing “competitive markdown pressure across the industry,” said it wouldn’t meet its fourth-quarter per-share profit forecast of 35 cents to 45 cents.

Same-store sales at luxury retailer Neiman Marcus Group Inc. sank 28 percent in December. Saks Inc. posted a 20 percent sales decline, twice as large as the drop analysts estimated, even after markdowns of as much as 70 percent on designer goods.

“This kind of discounting is a big concern,” Perkins said. “January will be a heavy clearance month, with further downward margins pressure, and we might see more forecasts cut.”

Limited Brands Inc. slashed its fourth-quarter profit projection to as little as 55 cents a share from a previous range of 85 cents to $1.

J.Crew Group Inc., which sells $200 cashmere sweaters, slashed its full-year forecast for a fourth time. In the fourth quarter, it predicts a loss of as much as 29 cents a share, down from profit of as much as 10 cents, because of “aggressive inventory actions” to clear out merchandise. Bebe Stores Inc. reduced the low end of its forecast to 5 cents from 12 cents.

Gap cut its full-year profit forecast to as much as $1.30 a share from a previous high of $1.35 after December merchandise margins fell. The shares slid 69 cents, or 5.1 percent, to $12.87.

“It’s almost like Pavlov’s dog,” said Craig Johnson, president of retail-consulting firm Customer Growth Partners LLC in New Canaan, Connecticut. “Consumers have become so accustomed to markdowns that nobody wants to pay full retail anymore.”

Sales Down, Forecasts Down

Sales are down as is forward guidance. Expect to see this theme play out time and time again throughout 2009.

Mike “Mish” Shedlock
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