The fourth-quarter outlook isn’t getting any prettier.

This story first appeared in the January 11, 2013 issue of WWD. Subscribe Today.

Tiffany & Co., Aéropostale Inc. and Ascena Retail Group Inc. all cut profit projections Thursday, weighing on retail stocks and reconfirming the generally blah reading of the holiday season. Tiffany said its comparable-store sales were flat for November and December and that comps at its New York flagship fell 2 percent.

Michael Kowalski, chairman and chief executive officer of the luxe jeweler, said, “Holiday period sales growth was at the low end of our expectations, and we now expect that net earnings for the year ending Jan. 31 will be at the lower end of the forecast that we issued on Nov. 29 of $3.20 to $3.40 per diluted share.”

Last week, Kohl’s Corp., Macy’s Inc. and Target Corp. all issued earnings guidance that fell short of analyst projections.

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Investors took the day to reassess and retail stocks rallied into positive territory late in the day. The sector is still near its all-time high.

The S&P 500 Retailing Industry Group rose 0.4 percent, or 2.41 points, to 666.52. The sector is up 1.9 percent so far this year.

The Dow Jones Industrial Average rose 0.6 percent, or 80.71 points, to 13,471.22 for the day. Shares of Ascena dropped 7 percent to $16.86, as Tiffany declined 4.5 percent to $60.40 and Aéropostale slipped 1 percent to $13.24. American Eagle Outfitters Inc. said its fourth-quarter comps through Jan. 8 increased 5 percent and reiterated its profit guidance, but saw its stock drop 3.3 percent to $19.94.

The holiday season has come with some silver linings. Urban Outfitters Inc.’s comparable sales for November and December rose 9 percent. Ceo Richard Hayne said the company delivered better product and was more disciplined with its inventory, which led to “improvement in regular priced sales.”

Overall, retailers faced lackluster consumption last month and cut prices to clear inventory. Of the companies that reported December comps last week, the winners generally were in the discount channel, such as Gap Inc.’s Old Navy division, The TJX Cos. Inc. and Ross Stores Inc. Nordstrom Inc. also excelled on the high end.

Urban Outfitters’ stock gained 4.6 percent to $42.64 Thursday and Zale Corp., which said it continues to expect to post a profit for the fiscal year, increased 11.7 percent to $4.68.

Zale’s comps inched up 2.3 percent over the past two months and the company kept a laser focus on the bottom line. Theo Killion, ceo, said, “Our comp performance, combined with an expected 100 basis point operating margin improvement, brings us closer to our goal of achieving positive net income for the fiscal year.”

Economists expect that while consumer spending will continue to ebb and flow in 2013, the general trend will be modestly upward.

The consumer came to life early in 2011 and 2012 only to deflate later in the year. Frank Badillo, economist at Retail Forward, said that could happen again this year, in part because the housing market is strengthening some.

“With some of the uncertainty disappearing, we are going to see pockets of growth and momentum start to build as more businesses and consumers gain a little more confidence,” Badillo said.

And the economist said U.S. consumers held up “fairly well” over the holiday season given the uncertainty around the fiscal cliff tax hikes and spending cuts, which were narrowly averted.

But the issue of government spending cuts still needs to be addressed and the global economy is fraught with troubles that could flare up and derail the U.S. consumer, from the debt troubles in Europe to slower growth in China. Brazil and Canada have also begun to show up on the economic warning screen.

“There are still new surprises that could cause any spring [spending] spurt to suddenly fall apart,” Badillo said. “As a result it is going to be a lot of the same pattern, where we should see some…momentum in the economy, but in the end it will be slow to modest growth.”

Ascena Retail Group Inc. said its November and December comps inched up a less-than-planned 1 percent.

David Jaffe, president and ceo, said, “The holiday selling season proved to be challenging and we increased promotional activity in order to ensure appropriate inventory levels going forward. We are taking the necessary markdowns in the second quarter to effectively transition into the spring season.”

Ascena now expects adjusted diluted earnings per share of $1.20 to $1.30 this year, instead of the $1.45 to $1.55 previously projected.

Aéropostale’s comps for the nine weeks ended Dec. 29 fell 8 percent on top of a 9 percent drop a year earlier.

“Following a strong Black Friday weekend, sales and traffic trends deteriorated significantly in December,” said Thomas Johnson, ceo. “From a merchandise perspective, our core basics businesses, particularly graphics and fleece, remained challenged. We continue to manage our inventories carefully, and we will enter the spring season with fresh and updated assortments.”

The specialty store cut its fourth-quarter earnings projection to a range of 20 cents to 24 cents a diluted share, down from the 36 cents to 41 cents previously projected.

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