Weakest holiday season in years

Clothing sellers, department stores suffer big sales misses in December; Wal-Mart and Costco benefit as more cash-strapped consumers shopped for discounts.

NEW YORK (CNNMoney.com) -- The 2007 holiday shopping season is turning out to be the weakest in years after retailers across-the-board reported deep declines in their December sales Thursday.
"These numbers are bad because consumers are clearly seeing some pain here," said Ken Perkins, president of sales tracker Retail Metrics.
According to Perkins, the holiday season started off strong as shoppers lapped up juicy discounts on Black Friday, the day after Thanksgiving which traditionally marks the start of the November-December gift-buying marathon which can account for as much as half of retailers' annual profits and sales.
"But then there was a three-week lull after that. The early shopping momentum didn't carry through the rest of the [holiday season]," Perkins said.
In the overall retail sector, Thomson Financial, which compares monthly results at 43 of the nation's largest retail chains based on analysts' estimates, expects total December same-store sales rose just 0.9 percent, much weaker than last year's 3.3 percent gain for the same period in 2006.
Even though November same-store sales rose a much better 4 percent overall, the average of the two months taken together is estimated to show a 2.4 percent increase, which would be the weakest comparable sales growth for the two months since the 2.3 percent gain in 2004.
The National Retail Federation, the industry's largest trade group, expects total sales for November and December combined rose 4 percent this past holiday season, which would mark the slowest pace of growth since 2002. The NRF will release its final tally of holiday sales next week.
Of the 29 retailers that have already reported their results, the firm said 66 percent missed analysts' sales forecasts, 31 percent beat projections, while 3 percent met estimates.
"Consumers are feeling the squeeze. They are spending less," Perkins said. "Now there's job uncertainty with last month's unemployment number showing a surprisingly large uptick."
Clothing sellers, department stores and other specialty chains delivered some of the biggest sales misses last month.
Gap (GPS, Fortune 500), the No. 1 apparel seller, reported a 6 percent same-store sales decline last month, teen apparel chain Pacific Sunwear posted a 2.9 percent sales drop, and women's clothing chain Ann Taylor's sales tumbled 9.4 percent.
Elsewhere, Macy's (M, Fortune 500) sales fell 7.9 percent versus expectations for a 6.5 percent decline while sales at Dillard's fell 5 percent.
Better month for Wal-Mart
Wal-Mart Stores reported December sales that were at the high-end of its guidance for the key holiday shopping month, but warned about its fourth-quarter earnings.
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Overall, the retail sector reported what appear to be the weakest holiday sales in several years. Apparel and department stores were among the poorer performers.
Wal-Mart (WMT, Fortune 500), the world's largest retailer, said December sales at its stores open at least a year, a key measure of retail performance known as same-store sales, rose 2.4 percent, at the high-end of its guidance of a 1 to 3 percent increase for the month.
The retailer said sales were driven by strong demand for its grocery, pharmacy and electronics products.
"Our price leadership position was clear very early in the holiday season, and customers responded throughout the period to our pricing and merchandise offerings," Eduardo Castro-Wright, Wal-Mart Stores CEO, said in a statement.
However, Wal-Mart said it also expects fourth quarter earnings "will be pressured by higher interest expense versus last year." The retailer estimates earnings of between 99 cents to $1.03 a share for the quarter.
Analysts expect the retailer to post a profit of $1.02 a share for the quarter.
Wal-Mart was especially aggressive with holiday discounts this past season, and chopped priced on thousands of toys and electronics products in late October, weeks ahead of its rivals.
For January, Wal-Mart said it expects same-store sales to increase by 2 percent.
But Wal-Mart's rival Target (TGT, Fortune 500) posted a 5 percent sales decline, missing analysts' forecasts for a 2.5 percent decrease, and warned that fourth-quarter results would be below the prior year's performance.
There were a handful of winners besides Wal-Mart. Costco (COST, Fortune 500) posted a same-store sales increase of 7 percent overall, including a 5 percent same-store sales increase in its U.S. stores.
Buckle Inc., seller of branded denim and trendy clothing, posted a stellar 18.7 percent jump in its December same-store sales. Teen clothier Aeropostale reported a 12.2 percent same-store sales increase, which analysts say came on the back of heavy discounting in December.