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Bargains drive holiday shopping

Retailers who offered the best sales saw the best returns at the opening of the holiday shopping season.

By MARK ALBRIGHT
Published December 2, 2005

The holiday shopping season got off to a modest but Grinch-like start that showed consumers were willing to spend in November - including the critical first weekend after Thanksgiving - if they found a bargain.

While most retailers reporting sales on Thursday slightly topped analysts' meager forecasts, the early going underlines that retailers will probably have to resort to heavy markdowns to reach their sales targets. Nonetheless, 24 of the 29 retail stocks in the S&P 500 rose Thursday because investors may be relieved "it wasn't any worse," said Shayne John, who helps manage $2.5-billion at NCM Capital Management.

"It's going to be a great December for consumers in terms of saving on their shopping, but it is going to be a very mixed year for retailers and the bottom line," said Burt Flickinger, managing director of Strategic Resource Group.

Last month's winners were stores that heavily discounted to draw crowds over the Thanksgiving weekend, including Wal-Mart Stores Inc. and J.C. Penney Co. Inc.

Upscale retailers were among the disappointments, including Nordstrom Inc. and Saks Fifth Avenue, usually top performers among the high-end stores that had been considered most immune to economic swings. American Eagle Outfitters, a longtime darling among the teen and college-age set, reported a skimpy 1.7 percent gain, while sales at popular Abercrombie & Fitch and Wet Seal surged.

On the upside, Limited Brands Inc. had solid gains after struggling for months with its fashions. Limited's sales were fed by a combination of aggressive price cutting and a makeover of its Express division.

"You had some very good performances by only a handful of stores, but you also had a fair amount of weakness. Most of the business was driven by promotions," said Michael P. Niemira, chief economist at the International Council of Shopping Centers. "The underlying softness we saw in November increases the worry about the holiday as a whole."

The UBS-International Council of Shopping Centers' November sales tally of 65 retailers rose 3.5 percent last month. That matched Niemira's forecast, but beat a meager 1.8 percent increase a year ago. The sales tally is based on sales at stores open at least a year, known as same-store sales.

"Although business was strong over the Thanksgiving weekend, we were disappointed with our sales in November," said Terry Lundgren, chairman and chief executive of Federated Department Stores, owner of Macy's and Bloomingdale's. "We hope the trend continues through the rest of the holiday season."

Going into the holiday season, retailer optimism rose as gasoline prices fell dramatically from September highs. The latest batch of upbeat economic data and a rebound in consumer confidence in November were encouraging signs that shoppers will get more generous.

The Commerce Department reported separately Thursday that personal spending edged up in October, while incomes rose 0.4 percent. In another report, the Labor Department said the number of hurricane-related job losses totaled just 9,600 last week, a substantial improvement from 21,000 the previous week.

Wal-Mart, which stumbled last November by not discounting enough, benefited by offering more price cuts this time. That led to a same-store sales increase of 4.3 percent, matching estimates from analysts polled by Thomson Financial.

The chain expects same-store sales growth for December of 2 percent to 4 percent.

Discount rival Target Corp., whose business was hurt by Wal-Mart's aggressiveness, had a 2.6 percent increase in same-store sales. The results came slightly under the 2.7 percent Wall Street forecast. Costco Wholesale Corp. reported a 6 percent gain in same-store sales, short of the 7.9 percent estimate.

Nordstrom's same-store sales rose 2.8 percent, well off the 4.6 percent analysts expected.

Neiman Marcus had a 4 percent same-store sales increase. Thomson Financial does not offer sales estimates, as the luxury retailer is privately held.

Federated, which recently bought May department Stores Inc., suffered a 3.4 percent same-store sales decline, below the 0.8 percent gain analysts forecast. That included only the chain's Macy's and Bloomingdale's units.

J.C. Penney had a 3.6 percent same-store sales gain in its department store group, above the 1.9 percent estimate.

Gap Inc. posted a 4 percent decrease in same-store sales, though better than the 5.1 percent analysts forecast.

Limited had a 5 percent gain in same-store sales, better than the 2 percent forecast. The solid increase was helped by a dramatic improvement in business at its Express stores, which is attracting more customers with a less expensive casual clothing strategy. Its previous emphasis on pricier wear-to-work clothes failed.

--Information from the Associated Press and Bloomberg News was used in this report. Mark Albright can be reached at albright@sptimes.com or 727 893-8252.

[Last modified December 2, 2005, 01:13:14]