By and  on January 11, 2002

NEW YORK -- The prognosis was dire, but the patient managed to pull through.

A late burst of promotion-induced gift-giving, as well as a few blasts of frigid air, allowed retailers, who were braced for the worst, to instead post December same-store sales figures that were either on plan or even slightly ahead. As a result, many stores either affirmed or raised earnings expectations rather than reducing them.

"Retailers finished on a strong note, helped by last-minute buyers and favorable weather," Wayne Hood at Prudential Securities said. "You can manage in a difficult environment if you anticipate it and that is what helped." Hood said his monthly index of 59 apparel retailers rose 2.5 percent in December, better than the flat results he forecast.

"The Christmas season was a success, in that retailers were able to adapt to the environment, but I do not think retailers were pleased on an absolute basis," Shari Schwartzman Eberts at J.P. Morgan said. Still, she said December's results bode well for companies hoping to meet their fourth-quarter projections.

Or, in some cases, exceed them. Gap reported a comp decline of 11 percent, far better than expected and less than half its November dip of 25 percent. The surprising news prompted Gap to raise fourth-quarter earnings expectations to a loss of 6 cents per share and helped elevate its stock $1.83, or 12.6 percent, to close at $16.35 in New York Stock Exchange trading.

According to the Goldman Sachs monthly comp-store index, same-store sales rose 2.6 percent in December, better than the 0.9 percent growth expected. Led by Wal-Mart, discounters plowed ahead of the industry, improving 5.7 percent in December. Specialty retailers dropped 1.9 percent last month. Finally, department store chains, who shifted a week of December sales into November this year, decreased 3.6 percent, compared with a drop of 0.1 percent a year ago.

The better-than-expected sales results -- coupled with indications that margin declines were limited, inventories were clean and expense controls were tight -- relieved investors, who lifted the Standard & Poor's Retail Index 1 percent, to 922.52.

"December same-store sales results generally posted upside surprises for broadline retailers," Richard Church at Salomon Smith Barney said. "The 2001 holiday sales were not the worst in decades and not even as bad as the last recession in 1990."

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