Wal-Mart and other retailers warn after weak December

Wal-Mart and other retailers warn after weak December

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By Brad DorfmanPosted 2009/01/08 at 10:00 am EST

CHICAGO, Jan. 8, 2009 (Reuters) — Wal-Mart Stores Inc led U.S. retailers in posting disappointing December same-store sales on Thursday, and it cut its quarterly earnings forecast despite being the store of choice in a recession.

A worker brings carts back into a Walmart store in Westminster, Colorado in this August 14, 2008 file photograph. REUTERS/Rick Wilking

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Many other retailers also warned about weak profits in their fourth quarter, which includes January and the all-important holiday shopping season. Among those warning were department store operators like Macy's Inc, which suffered as deep-discounting hammered margins in the weakest U.S. holiday season seen in nearly four decades.

Wal-Mart, the world's largest retailer, said sales at U.S. stores open at least a year rose 1.7 percent, excluding gasoline. On that basis, analysts on average had forecast a 2.8 percent increase.

The company's shares fell more than 8 percent in premarket trading, putting pressure on major U.S. index futures.

"Due to the difficult economy and severe winter weather in some regions, the holiday season was more challenging for retailers than expected," said Wal-Mart Vice Chairman Eduardo Castro-Wright.

The company said groceries and health-related products saw mid-single-digit percentage sales gains in December, while demand for clothing and jewelry was soft.

The report from Wal-Mart was the latest sign of how the recession has prompted consumers to cut down on any but the most essential purchases.

"The economy is in real difficult shape here, and their core consumers, lower- and middle-income consumers, that have really been flocking there cut back on discretionary spending," said Ken Perkins, president of research firm Retail Metrics.

Wal-Mart expects earnings of 91 cents to 94 cents a share from continuing operations for the fourth quarter that began on November 1, down from its November forecast of $1.03 to $1.07.

REPEATED MARKDOWNS

Retailers across the board offered deep discounts to lure shoppers in the holiday season, often repeatedly marking down items like clothing as traffic to stores proved weak.

Research firm Retail Metrics forecasts a 19.3 percent drop in retailers' fourth-quarter earnings, with that decline widening to 27.5 percent if Wal-Mart is excluded.

With consumers reeling from a recession, job uncertainty, tighter credit and falling stock portfolios, analysts see little reason for retail to rebound in the first half of 2009.

Of 22 retailers that reported sales on Thursday morning, 11 beat sales estimates, 10 missed and one matched, according to Thomson Reuters.

But beating sales estimates won't necessarily help profits.

Macy's same-store sales fell 4 percent in December, besting the average analyst estimate of a 5.3 percent drop. But the company cut its fourth-quarter profit forecast on expectations for a steeper decline in November-January.

Clothing seller J Crew Group Inc now expects a loss of 24 cents to 29 cents a share for the quarter instead of the profit of 5 cents to 10 cents it previously forecast.

Gap Inc posted a 14 percent drop in same-store sales, worse than the 9.3 percent average forecast, and said fourth-quarter profit would be worse than analysts expected.

"This holiday period was the most difficult in memory due to the overall macroeconomic situation," Neal Goldberg, CEO of jeweler Zale Corp, said in a news release. "This environment dictated a very aggressive promotional stance with a focus on cash flow and inventory levels."

Zale said same-store sales fell 22 percent in December and 19.5 percent for the entire November-December holiday period.

Even retailers that had better-than-expected sales said the improvement came at the expense of margins.

Department store operator J.C. Penney Co Inc said same-store sales fell a less-than-expected 8.1 percent, but the company had to aggressively cut prices to help sales in the later part of the month.

(Additional reporting by Martinne Geller in New York, Jessica Wohl in Chicago and Karen Jacobs in Atlanta; Editing by Lisa Von Ahn)

Copyright Reuters 2008. See Restrictions for more details.