Dec. Sales Growth at 10-Year Low

The retail industry on Thursday reported surprisingly weak December sales, far below analysts’ estimates and perhaps the worst year-over-year performance in a decade.

Not even the heavy discounting before and after Christmas could lure enough paying customers.

Almost all merchants, from discounter Wal-Mart Stores Inc. to upscale firms such as Tiffany & Co., fell victim to the nation’s economic slowdown.

The malaise, made worse by winter storms, hit most merchandise categories, even the DVD players and other electronic gadgets that were supposed to be the holiday season’s big winners.

“This is the worst I have seen in at least 10 years,” said Michael Niemera, a retail industry analyst at Bank of Tokyo-Mitsubishi Ltd. “The economy has been a real problem since at least June, and the overall situation clearly got worse.”

Sales for December rose a paltry 0.1%, according to the Goldman Sachs retail composite index, with department stores down 0.1%, specialty apparel stores down 1.5%, specialty hard goods flat and discounters up a scant 0.5%. Bank of Tokyo-Mitsubishi in New York put its chain-store sales index up 0.7% compared with last year, and Salomon Smith Barney gauged its gain for broad-line retailers at 0.4%.

It now seems that many companies’ earnings will disappoint, because dramatic promotions failed to bring in the sales volume the stores needed for a happy ending to the year.

Many retailers, including Gap Inc., Intimate Brands Inc., Limited Inc., AnnTaylor Stores Corp. and Tiffany warned that crucial fourth-quarter earnings would fall below estimates.

Sears, Roebuck & Co., which reported a 1.1% sales decline compared with a year ago, was hit hard. The company said Thursday that it will close 89 under-performing stores and eliminate 2,400 jobs after a disappointing holiday season.

Hoffman Estates, Ill.-based Sears is shutting four Sears department stores; 53 NTB stores, which sell tires and batteries; and 30 hardware stores.

Only two of the closing stores are in California--Orchard Supply Hardware stores in Whittier and West Covina.

And that could be just the beginning. “Retailers are coming to grips that the industry is coming to a turning point,” said Kurt Barnard, publisher of the Barnard Retail Trend Report in Upper Montclair, N.J. “Expenditures will have to be watched with an eagle’s eye. I expect to see more store closings.”

There were some exceptions to the dreary news: Top-performer Kohl’s Department Stores, which has recently been scouting locations in California, announced a 14.8% sales gain over last year that shocked even its biggest fans; Talbots, the specialty retailer that has been on fire much of the year, continued apace with a 12.9% December sales gain.

Talbots even raised its per-share earnings estimates for its fourth quarter to be in the range of 46 cents to 48 cents.

Also on the better-than-expected list were a host of teen clothing sellers, including Gadzooks, Hot Topics and American Eagle. Even Limited, which reported flat same-store sales for the overall company, noted that its young and trendy division, Express, had a 12% same-store increase last month.

Pacific Sunwear of California Inc. posted a 5.7% increase in same-store sales for the month.

Wet Seal Inc. said same-store sales climbed 10.2% and predicted that fourth-quarter net income will exceed analysts’ estimates of 65 cents a share.

But even some of the biggest names failed to pull in healthy gains.

Wal-Mart Stores Inc., the world’s largest retailer and long a market favorite, reported a sales gain of just 0.3%; last year the giant discounter reported a 9.1% December gain over the year before.

Likewise, Target Corp., another strong player, reported that namesake stores gained only 0.9%, with Mervyn’s helping to drag down its department stores division with a 2.4% sales decline. Target’s Dayton Hudson department stores posted a 5% sales loss.

Those numbers for mass merchants, including Kmart Corp., with a 0.7% gain and Sears’ decline, meant an odd turn of events: Federated Department Stores Inc., parent company of Macy’s and Bloomingdale’s, posted a 1.2% sales gain, putting it in the highly unusual position of outperforming its discounter cousins.

The Federal Reserve’s interest rate cut Wednesday offers retailers some hope, analysts said, although not in the short term.

Gap, which has been struggling for the last year, had a 6% drop in same-store sales, which are considered the best measure of a retailer’s performance.

“We’ve made our own mistakes, but the retail environment also has changed dramatically in the past year,” Millard Drexler, Gap’s chief executive, said in a statement. “In response, we’ll be managing costs and inventory more tightly.”

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Associated Press was used in compiling this report.

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The Real Grinch

Wall Street expected this years holiday sales to be sluggish to bad. What investors found out Thursday was that in fact sales were even worse, with an overall year-over-year gain of less than 1%.

Percentage change for major retailers same-store sales in December 2000 compared with December 1999:

Source: Associated Press