Retailers falter in November; December may be weak

Rachel Katz

Thursday, Dec. 2, 2004 | 9:20 a.m.

Sales at U.S. retailers rose less than forecast in November as Federated Department Stores Inc. and Limited Brands unexpectedly posted declines. Wal-Mart Stores Inc. forecast an increase of as little as 1 percent in December amid higher fuel prices and lower consumer confidence.

Sales at stores open at least a year rose 1.7 percent as holiday shopping began, the second smallest gain this year, according to the New York-based International Council of Shopping Centers. Almost half of 69 chains tracked by ICSC reported declines.

"It's a bad number," said ICSC chief economist Mike Niemira. "We have widespread weakness and comments from some retailers now that they'll step up promotional activity. They usually wait a little bit."

Shares of retailers including Wal-Mart, Gap, Limited Brands, AnnTaylor and Best Buy Co. dropped. Gasoline prices near record levels contributed to a fall in consumer confidence in November, according to the Conference Board. The New York-based group's confidence index dropped to 90.5, an eight-month low, from 92.9 in October.

Even luxury retailers posted disappointing results. Neiman Marcus Group Inc.'s sales gain of 6.6 percent was less than analysts' estimates. Sales at Seattle-based Nordstrom Inc. rose 3.1 percent last month after climbing 7.8 percent on average the previous four months.

ICSC, which had forecast a gain of as much as 3 percent for November, cut its November-December holiday estimate to 2.5 percent to 3 percent, from an earlier projection of 3 percent to 4 percent.

Wal-Mart, which had a 3.9 percent sales gain in November 2003, said sales the week of Thanksgiving fell short of its expectation as the number of customers declined and it offered fewer discounts. The retailer trimmed promotions to bolster margins, said investors.

Wal-Mart forecast a 1 percent to 3 percent December gain after the company's November increase of 0.7 percent fell short of its forecast. Target Corp. posted a 3.2 percent gain in November.

"Maybe 'lackluster' is being a little kind," said Donald Gher, who helps manage about $575 million including Wal-Mart shares at Coldstream Capital Management in Bellevue, Wash.

Sales at Federated fell 1.4 percent and Limited Brands dropped 5 percent, hurt by a 22 percent decline at its Express apparel chain.

"While traffic was soft, particularly in the traditional segment, promotional activity was generally lessened this year, with most department stores reporting an increase in ticket," Linda Kristiansen, a UBS analyst in New York, wrote. "This bodes well for 4Q gross margins."

Retailers that offered added discounts on the day after Thanksgiving attracted more shoppers, said Britt Beemer, chairman of America's Research Group, which studies the retail market.

J.C. Penney offered an extra 10 percent off clearance items and slashed prices 60 percent on children's jackets from 5:30 a.m. to noon Friday. Neiman Marcus and Nordstrom Inc. didn't have discounts tied to the day after Thanksgiving, Smith Barney analyst Deborah Weinswig said.

"If you didn't have the spectacular specials on Friday, you were in trouble," said Beemer, who is based in Orlando.

Gap, owner of the Gap, Banana Republic and Old Navy chains, reported a 4 percent decline in November same-store sales. Analysts had expected an increase.

The company will be "managing our holiday promotions to offer compelling value," Sabrina Simmons, senior vice president, said in a statement.

Strong "performance of fashion and newness bodes well for December, particularly for retailers with merchandising savvy," analyst Kristiansen wrote. Sales of gift cards and online shopping, not counted in same-store results, may improve retailers' results.

"We should still have a decent holiday season," Gher said. "But we may not see how good it is until January" when gift cards are redeemed.

Retailers' sales are likely to slow in the next few weeks as shoppers wait for holiday discounts, Merrill Lynch analyst Daniel Barry wrote in October.

High-end retailers will do better because "there's a lot less leeway at the lower end to compensate" for higher energy and health-care costs, said Scott Mlynek of Fifth Third Asset Management, whose $30 billion in assets include Nordstrom and Best Buy Co. shares.