The holiday warning signs just keep flashing brighter.

This story first appeared in the November 16, 2012 issue of WWD. Subscribe Today.

Wal-Mart Stores Inc., Target Corp. and Sears Holdings Corp. on Thursday stirred further concern as they reported third-quarter numbers. Wal-Mart raised the most red flags by missing analysts’ sales estimates, an indication that its core lower-income customer is still struggling with high unemployment and high gas prices.

The miss sent Wal-Mart’s shares down 3.5 percent to $68.80 and rippled through the entire stock market. The S&P 500 Retailing Industry Group slipped 0.03 percent to 634.72 as the Dow Jones Industrial Average fell 0.2 percent to 12,542.38. Markets were also shaken by the news that Europe has officially entered another recession, stirring more fears over the global economy.

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Other retail decliners included The Bon-Ton Stores Inc., which posted narrower third-quarter losses, but saw its stock slip 5.8 percent to $10.30; Urban Outfitters Inc., down 3.8 percent to $34.82, and American Eagle Outfitters Inc., off 2.4 percent to $18.87.

Wal-Mart’s sales for the third quarter rose 3.4 percent to $113.20 billion, but missed analysts’ average forecast of $114.96 billion. The retail giant earned $3.64 billion, or $1.08 a share, compared with $3.34 billion, or 97 cents a share, a year earlier.

Looking ahead, Wal-Mart chief executive officer Mike Duke — who was among business leaders who met President Obama on Wednesday to discuss the looming “fiscal cliff” — said, “Price will continue to be a major factor for customers over the holidays. Our strong price position and broad assortment are clear competitive advantages in an economy where customers may still be cautious with their budgets.”

The retailer reported that net sales in the third quarter were $113.2 billion, a 3.4 percent increase over last year. Currency exchange rate fluctuations negatively impacted net sales by about $1.7 billion. Without the currency impact, net sales would have been $114.9 billion, a 4.9 percent increase. Wal-Mart U.S. posted a 1.5 percent increase in comp-store sales in the 13-week period ended Oct. 26. Sam’s Club’s same-store sales, without fuel, rose 2.7 percent. Wal-Mart International’s sales rose 2.4 percent to $33.2 billion on a constant currency basis.

Duke also noted that the company continues to invest in e-commerce. Fourth-quarter diluted earnings per share from continuing operations are expected to range from $1.53 to $1.58. For the full year, Wal-Mart provided EPS guidance of $4.88 to $4.93.

Target beat Wall Street analysts’ estimates for third quarter net earnings, which rose 15 percent to $637 million, or 96 cents a share, from $555 million, or 82 cents a share, in last year’s third quarter. Third-quarter EPS includes a 15-cent gain from the pending sale of Target’s credit card receivables portfolio. Excluding the gain, the profit was 81 cents a share, 4 cents higher than Wall Street was expecting.

Sales in the third quarter increased 3.4 percent to $16.6 billion from $16.1 billion last year, reflecting a 2.9 percent increase in comp-store sales combined and the contribution from new stores.

Gregg Steinhafel, chairman, president, and ceo of Target, said during a conference call with retail analysts, “We are well-positioned to deliver strong fourth-quarter performance by offering compelling merchandise and unbeatable value through initiatives like the Target/Neiman Marcus Holiday Collection, 5 percent Red Card Rewards and a new holiday price-match program that will allow guests to shop at Target with confidence during the holiday season.”

Kathryn A. Tesija, executive vice president of merchandising and supply chain, said men’s and performance apparel have been strong, conceding that women’s and kid’s have been a little weaker. “The weakness in kids and ready-to-wear is relative weakness, mostly driven by seasonal,” she said. “We saw some strength in the ‘better’ and ‘must-have’ product [categories]. Throughout the course of the year, our apparel business has been pretty solid.”

Despite the hype for the Target + Neiman Marcus Holiday Collection, Tesija said she’s not interested in doing more permanent collaborations. “We feel having limited-time partnerships with designers is the best thing,” Tesija said. “It allows us to capitalize on trends in the market.”

Target said it expects adjusted EPS for the fourth quarter of $1.64 to $1.74 and generally accepted accounting principles EPS of $1.45 to $1.55, which reflects the anticipated EPS impact of expenses related to the company’s Canadian market entry.

Both retailers are experiencing employee backlash over stores opening on Thanksgiving Day — Wal-Mart at 9 p.m. and Target an hour earlier. Dozens of petitions were started by Making Change at Wal-Mart, a campaign sponsored by the United Food and Commercial Workers union, which covers retail workers, and others were created on asking retailers to “save Thanksgiving.” On Thursday, Making Change issued a press release that said warehouse workers walked off the job Wednesday and Thursday in protest at Wal-Mart’s alleged attempts to silence workers who speak out for better jobs. Warehouse workers from Southern California walked off the job Wednesday afternoon and were joined on Thursday by workers from Seattle. Making Change said the strikes are the first of 1,000 protests at Wal-Mart stores leading up to Black Friday.

“This is just another exaggerated publicity campaign aimed at generating headlines to mislead our customers and associates,” said Wal-Mart spokesman Kory Lundberg. “We have a great group of associates at Wal-Mart. We’ll have more than one million associates working throughout the holiday weekend and they’re excited about our Black Friday plans this year. This is the Super Bowl for retailers and we’re ready. The fact is, these ongoing tactics being orchestrated by the UFCW are unlawful and we will act to protect our associates and customers from this ongoing illegal conduct.”

Both Wal-Mart and Target have picked up share from Sears, which has charted a new direction under the control of hedge fund guru-turned-retail iconoclast Edward Lampart.

Lou D’Ambrosio, president and ceo of Sears, said he was going to put the pedal down on the company’s transformation — even as net losses in the third quarter widened to nearly half a billion dollars.

“The retail industry continues to change dramatically and rapidly,” D’Ambrosio told Wall Street on a conference call. “It will never go back to what it was, and we have seen the consequences for those that have not changed fast enough. There is no choice, which is why we will continue to accelerate our transformation.”

D’Ambrosio is steering the company toward a membership-based model anchored in its Shop Your Way program, which is receiving “several hundred million dollars” in investment this year.

“More than half of our revenues at Sears and Kmart now come from Shop Your Way members,” the ceo said.

Sears’ efforts to court customers in new ways weren’t enough to pull the firm into the black in the third quarter.

Net losses attributable to the retailer widened to $498 million, or $4.70 a share, from $421 million, or $3.95, a year earlier.

The company said adjusted losses before interest, taxes, depreciation and amortization narrowed to $156 million in the quarter from a deficit of $190 million a year ago.

Revenues for the quarter ended Oct. 27 fell 5.8 percent to $8.86 billion from $9.41 billion. The Sears chain in the U.S. posted a comparable-store sales decline of 1.6 percent, while the Kmart unit comped down 4.8 percent. Apparel was called out as a stronger performer than the average.

The quarterly results drove shares of Sears down 5.9 percent in after-market trading.