Retailers Are Showing Softness In December Same-Store Sales

Retailers are delivering a bit of coal to investors stockings as early reports of December sales are proving lackluster.

Of the roughly dozen that have reported, about half have missed analysts' expectations for the holiday month's same-store sales, including Costco Wholesale Corp. (COST), which had been faring well, and teen retailers Zumiez Inc. (ZUMZ) and Wet Seal Inc. (WTSLA). Fellow teen retailer Hot Topic (HOTT) Inc. had a slight beat, although sales fell.

Department stores have yet to report and it may be a case where at least some of the business that usually goes to the teen merchants shifted over to department stores that made a big play for the demographic this year.

All told, the 28 retailers followed by Thomson Reuters are expected to report that their December same-store sales rose 3.4% after a 5.6% gain in November. If retailers hit the 3.4% gain, the showing would be the best December since 2006, when same-store sales rose 4.7%. Sandwiched between was the recession and lingering economic weakness in which December comparable-store sales dropped 2.5% in 2009, declined 0.7% the prior year and rose 3.2% in 2007.

So far, though, some softness prevails. Many retailers were coming off a strong November, which may have raised expectations that the momentum would continue into December. Retailers also contended with massive strong storms in the West before Christmas and in the East just after the holiday. In general, according to comments retailers are making, there appeared to be a pronounced lull in buying during mid-December. A number of retailers said they lowered prices toward the latter part of the buying season in an apparent bid to try and make up business.

There are some success stories, although their comparable-store sales in a number of cases weren't as strong as they have been in prior months. Limited Inc. (LTD) reported a 5% rise in same-store sales, beating expectations for a 4.6% gain. Buckle Inc. (BKE) said sales at stores open more than a year rose 6.1% in December, when a 4.5% increase was expected.

A number of retailers have reduced their quarterly expectations as a result of their showing. Wet Seal, women's apparel retailer Cato Corp. (CATO) and Bebe Stores Inc. (BEBE) have all tempered their views.

Consumers appear to have come into the holiday season primed. In December 2009, only 10% planned to spend more on holiday gifts than the previous year, according to a U.S. spending survey by Discover Financial Services (DFS). In 2010, the number rose to 14%. Also, only 57% planned to spend less on holiday gifts during the recent holiday season, 7 percentage points less than in 2009, Discover said.

This was the year retailers also had an additional leg up, having their online operations come into their own. U.S. online sales for the November through December holiday shopping period were a record $32.6 billion, up 12% from a year ago, according to ComScore Inc. (SCOR), with Cyber Monday, the Monday after Thanksgiving, seeing over $1 billion spent, the largest one-day online sales day ever.

-By Karen Talley, Dow Jones Newswires; 212-416-2196; karen.talley@dowjones.com

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