4th UPDATE:Retailers Miss Modest November Sales Expectations

With three weeks left in the crucial pre-Christmas shopping season, the game of chicken between shoppers focused on discounts and retailers trying to protect profit margins is intensifying.

U.S. retailers' November same-store sales broadly missed analysts' muted expectations, and the industry as a whole eked out only a slight increase over last year's sharply lower levels.

Much of the reported weakness was tied to lower sales earlier in the month, as several chains indicated Black Friday weekend sales provided a month-end lift. Online sales were also a bright spot for many, but both of those positives weren't enough to offset shoppers' reluctance to buy discretionary and full-priced items.

"Consumers are still very, very picky, and they won't shop unless they have a value," said Jharonne Martis, director of consumer research for Thomson Reuters. Retailers, she said, "are going to have to be very smart about how to lure the shopper in without lowering their margins."

Shoppers expect everything to be on sale--and at least 20% to 25% off, according to retail consultancy WSL Strategic Retail. "Some categories require even more to get shoppers buying: 32% for electronics; 34% for fashion and 34% for home," the firm said in a note Thursday.

"It doesn't matter that the retailers keep talking about we've got less inventory and you'd better buy it now," said WSL Chief Executive Wendy Liebmann. "People say, 'OK, so? I'll wait.' It's good for the retailers in the end to have less inventory and markdowns, but at the same time, scarcity will not necessarily drive the sale."

Retail stocks were mixed in recent trading. Wal-Mart Stores Inc. (WMT), which stopped issuing monthly sales figures earlier this year, fell 0.3% to $54.41 and Target Corp. (TGT) shares decreased 3.4%. Pier 1 Imports Inc. (PIR) and Limited Brands Inc. (LTD), rose on better-than-expected sales.

November's 0.5% same-store sales increase industrywide, according to Thomson Reuters, follows the year-ago period's 7.8% slump as the stock market swooned. Both figures exclude Wal-Mart.

The last forecast from analysts surveyed by Thomson Reuters was for 2.1% growth in November and 0.4% growth for the fourth quarter, but Martis expects fourth-quarter estimates to come down.

But with consumers behind on their shopping compared with last year, the spending catch-up will come in December, said Michael P. Niemira, chief economist and director of research for the International Council of Shopping Centers Inc. The group reiterated its forecast of 2% to 3% growth in December sales and a 1% increase in holiday chain-store sales.

Child and teen apparel retailers posted the biggest November disappointments, hurt by weak traffic that some analysts said was tied to unseasonably warm weather. But other apparel retailers, notably Limited and Ross Stores Inc. (ROST), posted stronger-than-anticipated sales.

Kohl's Corp. (KSS) and TJX Cos. (TJX) said home goods were among their strongest sellers--good news for the beleaguered product category.

Department store Macy's Inc. (M), which posted a worse-than-expected 6% sales decline, cited weakness in coats, sweaters and other winter merchandise.

"We're going to be very disappointed with apparel sales through the rest of the holiday season unless the weather snaps," said Randy Allen, a former Kmart Corp. and Deloitte Consulting executive and now associate dean for Cornell University's Johnson Graduate School of Management. Without a cold snap in the next few days, she expects significant discounting in apparel will be needed to spur sales, despite retailers' lean inventories. "Consumers just aren't going to buy if the weather's not cold unless there's a good deal."

The Carolinas through the Northeast could see cold rain and the potential for snow in the next week, and the Upper Midwest and Plains areas could also see snow and ice, said Evan Gold, senior vice president of client services at Planalytics, a weather-focused retail consultancy with clients such as Levi Strauss, Lands' End and Payless ShoeSource.

December is expected to be warmer than last year across much of the U.S., but it will cool down from recent trends, and on the heels of the warmest November in eight years, shoppers will be reminded that winter is arriving, Gold said.

The retailers' November performance comes after what many viewed as a mixed kickoff to the holiday shopping season, with shoppers on average spending 7.9% less than the Black Friday weekend of 2008, according to the National Retail Federation. In general, lower-priced items were favored, continuing a trend of less-expensive retailers, be they discounters or lower-priced apparel sellers, outperforming other chains in the past year.

Still, Costco Wholesale Corp. (COST) on Thursday reported weakness in November after two months of solid growth, as same-store sales were flat in the U.S. excluding gasoline for the warehouse club. Its shares fell 3%.

Smaller rival BJ's Wholesale Club Inc. (BJ), which has been outperforming Costco of late, also reported weaker-than-expected results with its 1% growth. Its stock dropped 2.1%.

But discount-apparel chains TJX and Ross Stores continued their recent strength, with both reporting 8% increases, though TJX's gain was less than forecast by analysts.

Among department stores, Kohl's 3.3% increase topped expectations, while Macy's and J.C. Penney Co. (JCP) posted lower sales.

Target reported a bigger-than-anticipated 1.5% drop and said it expects December comps in line with November results.

Gap Inc. (GPS) reported flat results, in line with expectations but surpassing others in the specialty apparel group as promotions such as a buy-one-get-one-free sweater deal connected with shoppers, Wall Street Strategies analyst Brian Sozzi said.

Teen apparel chain Abercrombie & Fitch Co. (ANF) posted a much bigger-than-expected 17% slide in November same-store sales, with its Hollister brand showing the weakest trends.

Children's Place Retail Stores Inc. (PLCE) reported a 13% swoon, not the average 1% gain analysts anticipated. Its shares fell 10.8% while Abercrombie dropped 7.2%.

(Kevin Kingsbury contributed to this report.)

-By Mary Ellen Lloyd, Dow Jones Newswires, 704-948-9145; maryellen.lloyd@dowjones.com

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