By and  on January 6, 2011

So much for consumer mania.

Shoppers reverted to their more frugal natures in December, dragging retailers to weaker-than-expected comparable-store sales for the month and putting fourth-quarter profits at risk. The numbers were in sharp contrast to the euphoric feelings retailers had throughout the holiday period when their Christmas wish was that consumers had finally shaken off their Scrooge-like behavior and were ready to buy, buy, buy.

Instead, a small majority of stores tracked by Thomson Reuters — 51.9 percent — missed analysts’ sales estimates for the month.

In the cold light of a new year, holiday’s highly promotional environment hit mall-based specialty stores especially hard, although department stores, particularly at the higher end, continued their strong ascent.

Coming off a strong November, retailers were looking to maintain their momentum, but consumers pulled back on purchases during the last two weeks of December.

Wall Street was clearly displeased with the results, sending the S&P Retail Index down 8.04 points, or 1.6 percent, to 500.96 as the Dow Jones Industrial Average weathered a far smaller decline — 0.2 percent — to end the day at 11,697.31.

All told, retailers reporting on Thursday generated a 3.1 percent increase for the month, below the anticipated 3.5 percent rise, according to Michael Niemira, chief economist and director of research for the International Council of Shopping Centers, who characterized the month as “good but uneven, with apparel specialty stores feeling more promotional pressures coupled with some weather issues that cut into their sales.”

Taken together, November and December sales rose 3.8 percent, marking the strongest gain since 2006, when they increased 4.4 percent, the ICSC said.

Despite the spending deceleration, most analysts don’t expect too great an impact on fourth-quarter earnings. While Gap Inc., Aéropostale Inc. and Macy’s Inc. reiterated guidance, Kohl’s Corp., Ross Stores Inc. and The TJX Cos. Inc. raised theirs. However, The Wet Seal Inc. and American Eagle Outfitters Inc. lowered estimates.

Others, however, have their doubts. “Similar to comp misses, retailers could miss expectations on earnings,” said David Bassuk, managing director at AlixPartners’ retail practice.

The consumer is still very deal driven, and that is not likely to change in 2011, he said, noting that many retailers used unplanned, storewide promotions to lure shoppers.

“We saw that across the board, and I think that was a sign that sales were not there,” according to the consultant, who said some retailers built inventories after seeing strong demand in November.

“Retailers are way too quick to see an increase and believe it’s a long-term trend,” he said. “You think they would have learned from the past.”

Retailers are also likely to blame the weather if fourth-quarter earnings are pressured. “It’s a terrible excuse,” Bassuk said. “Consumers can shop online.”

Even if disappointing, the results did provide evidence of progress from the 2009 holiday season. “November and December were both encouraging signs,” said Madison Riley, managing director of consulting firm Kurt Salmon. “Retailers were prepared. Their marketing was dialed up and the consumer responded.”

Citi analyst Jeff Black instead zeroed in on the promotional environment in the teen space, which could potentially impact fourth-quarter margins.

“Abercrombie really stole the show in the teen market,” he said. “American Eagle planned for more of a full-price, less promotional December, but they will still have solid [fourth-quarter] margins.”


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