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.”

Among the specialty stores, Chico’s FAS, Christopher & Banks, Wet Seal, Hot Topic and Pacific Sunwear posted comp increases of 4 percent or more. Market conditions and the calendar made department store growth harder to come by, but J.C. Penney Co., Kohl’s, Federated and May Co. all managed better results than expected, although the latter two comped down 8.6 and 8.9 percent, respectively.

Steven Skinner, a partner at Accenture consultants, said the pain was spread pretty evenly between department and specialty stores in December. He noted: “Department stores continued to lose market share to the discounters and specialty stores, and we don’t see a turnaround in that trend in the near term.”

He added that while sales were slightly better than expected for the month, margins will probably end up being a little worse. Now, retailers have to “retrain the consumer to not look for markdowns,” he said, noting that doing so would be required to improve margins going forward.


Gap Inc. said its Friends and Family and other promotions helped it produce its positive December surprise. The company’s 11 percent comp decline included a 14-point drop at Old Navy, versus 9 percent at Gap and 3 percent at Banana Republic. Some analysts had expected a repeat of the November debacle that included a 25-point drop.

“December sales results significantly exceeded our expectations across all divisions, driven by intense promotional activity,” Heidi Kunz, Gap’s chief financial officer said. “While merchandise margins were well below last year, they did show some improvement compared to beginning-of-month projections, particularly at Gap. In addition, we were very pleased with the amount of inventory sold during the month, especially at Old Navy.”

Given Gap’s results and its outlook for January, Kunz said that she expects the retailing heavyweight to report a fourth-quarter loss per share no worse than than the 6-cent loss per share reported in the third quarter, excluding the tax-related charge.

Even with a decline in margins, Limited Inc. also was a plus-side surprise, with its 3 percent decline in apparel comps. “Although the retail environment was very promotional, we were no more promotional than we planned to be,” a company spokesman said. “Inventories were very conservatively positioned and promotions were well strategized.” With all brands’ comp and margin results better than expected, Express and Limited posting flat comps and Lerner New York and Structure down 8 percent and 6 percent, respectively, the company said it expects to exceed the current First Call consensus earnings estimates of 51 cents a share for the fourth quarter. Still, the company said that it remains cautious in its outlook for January and the spring season, as future customer traffic and spending levels are uncertain.

Its IBI subsidiary also performed better than expected, turning in flat comps, comprised of a 10 percent comp gain at Victoria’s Secret and a 9 percent drop at Bath & Body Works. Victoria’s Secret sales were boosted by strong customer reaction to its product assortment, which allowed fewer markdowns, the company said. Sleepwear continued to build on November’s momentum.

Ann Taylor also managed to do better than expectations, although its comps fell 2.4 percent. Comps in downtown and tourist locations decreased approximately 14 percent, following an 11 percent decrease in these same locations for November. Chairman J. Patrick Spainhour said: “Although we are pleased with December’s better-than-expected comparable-store sales results, the fourth-quarter environment continues to prove to be extremely promotional.”

Pacific Sunwear’s comps were up 4.1 percent. “Merchandise margins for the month held up well and were similar to December a year ago,” said Greg Weaver, chief executive officer, who projected fourth-quarter earnings per share of 5 to 6 cents above the 35 cents previously expected.

Wet Seal saw its comps rise 10.2 percent in December. “Given our current business trend, we believe that we can achieve low-single-digit comparable-store sales increases in fiscal 2002,” Kathy Bronstein, ceo, said in a statement. “We believe we can leverage our costs to yield a 10 to 15 percent increase in earnings in fiscal 2002.”

Talbot’s and Abercrombie & Fitch both reported negative comps in December, although both reaffirmed fourth-quarter guidance. Abercrombie & Fitch logged in a 10 percent decrease in comps versus a 5 percent drop in November, as aggressive promotions pushed some volume into the earlier month. Women’s comps were slightly negative. Abercrombie & Fitch also said that due to the low level of winter carryover inventory, it now expects January comps to be very difficult, although it said that it remains comfortable with its EPS guidance of 70 cents for the quarter now concluding.

Comps at Talbot’s decreased 7.8 percent, in line with expectations, as the company was able to keep its post-Christmas semiannual clearance sale on its traditionally scheduled date.


May Co.’s same-store sales dropped 8.9 percent in the month, but slid a milder 6.2 percent for the past two months taken together. Similarly, Federated comped down 8.6 percent for the month, but fell off a lesser 5.4 percent after smoothing out a calendar shift by combining the November and December periods. In a statement, ceo James Zimmerman noted, “The actual number of transactions in December was up this year; the average dollar amounts of those transactions, particularly in apparel areas of the business, was down.”

While Sears, Roebuck & Co.’s same-store sales may have slumped 2.4 percent for December, the full-line retailer was able to deliver good news to its investors. Excluding non-comparable items, Sears expects to post fourth-quarter earnings per share of $2.02, compared with the $1.91 expected by Wall Street. Driven by improved merchandise assortments and enhanced marketing, J.C. Penney Co. posted a 5.4 percent uptick in department store comps for December. Adding November, comps were up 3.7 percent.

Kohl’s Corp.’s eked out a 0.6 percent comp increase in December. Results roared ahead with 9.8 percent increase, though, after combining them with November’s sales. Saks Inc.’s comparable sales sank 7.2 percent in December, with a 7.5 percent decrease at the department stores and a 6.5 percent retreat by the Saks Fifth Avenue unit. Adjusting for calendar changes, the department stores’ comps rose 3.5 percent in December on relative strength in women’s apparel, accessories, shoes and outerwear. Adjusted comps for the SFA unit retreated 1.1 percent, though there was strength in women’s contemporary sportswear, gold range apparel, outerwear and the Saks Off 5th stores.


At least some of the con

sumers fleeing department and specialty stores are shifting their dollars to values offered by mass merchants, as was demonstrated by Wal-Mart Stores’ 8 percent comp increase in December.

Comps at Target Corp.’s namesake division inched up 1.8 percent, better than the 0.6 percent increase for the total company. Adjusting for the effects of calendar differences, same-store sales jumped 10.1 percent for Target stores, pulling up the corporation’s comp increase to 8.6 percent. Results were strong enough for the firm to nudge Wall Street, saying its fourth-quarter EPS will be “moderately higher” than current expectations of 65 cents.