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Retail Facing the Music

Holiday sales figures roll in Thursday. Was Wal-Mart's downer an anomaly?
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As investors gear up to learn how merry the holidays were for retailers,


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disappointing sales report for December has some worried that the shopping season was weaker than expected.

"I'm concerned that Wal-Mart could be the harbinger of some broader weakness," says Ken Perkins, president of RetailMetrics. "With everything they had going for them, Wal-Mart still came in at the low end of a not-very-aggressive plan. I wouldn't be surprised if we'll see more companies miss expectations than beat expectations."

The majority of retailers will report December sales results Thursday morning, and analysts will be eyeing their same-store sales, or comps. That figure, which measures sales at stores open at least a year, is a key gauge of a retailer's performance.

Based on analyst estimates, RetailMetrics' same-store sales index, combining results from more than 60 retailers, is calling for a gain of 3.2% for the month compared with last year.

"If results are in line with expectations, that would mean the season was okay," Perkins says. "It wouldn't be a blowout, but it wouldn't be a disaster either -- just sort of ho-hum. So, we'll see what happens."

The RetailMetrics estimate includes the latest disappointment from the world's largest retailer. Despite recording its slowest profit growth in years for its third quarter, Wal-Mart had raised expectations for a big holiday season. Discounters gained favor on Wall Street with price promotions becoming more prevalent as the season progressed, but over the weekend Wal-Mart reported only a 2.2% increase in same-store sales for December. The results were at the low end of the company's own forecast of 2% to 4% growth, and fell short of Wall Street's consensus estimate for a 3.1% increase.

Wal-Mart's chief competitor in the discount arena,


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, is expected to report a 4.5% comps gain. That would put Target back on top in the monthly sales race against its larger rival after it stumbled in November to a mere 2.6% increase, compared with Wal-Mart's 4.3% gain.

Target's November disappointment was attributed in part to aggressive promotional strategies employed by Wal-Mart early on in the holiday season in an attempt to squeeze sales in before consumers got hit with high home heating bills -- a threat to consumers that still looms. Wal-Mart was criticized last year for being late to the party with heavy holiday discounts and leaving sales on the table for competitors.

Now, analysts are wondering if Wal-Mart's aggressive strategies may have pulled December sales forward. Furthermore, the rise in popularity of gift cards, which force retailers to record sales after they are redeemed -- presumably sometime after Christmas -- may have pushed a significant portion of December sales into January and February.

"That's probably the single biggest wild card this holiday season given the growth and popularity of gift cards," Perkins said. "It looks like there's going to be quite a bit of gift card redemption taking place in January, and that's going to be the hope for a lot of these retailers to recoup some margins and make their quarter as we go through January."

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Retailers waiting for gift card redemptions in the last week of December were disappointed, based on data from the International Council of Shopping Centers. The ICSC reported that its weekly same-store sales index declined 0.8% after Christmas from the same period last year.

Deeper economic issues surrounding consumer spending -- high gas prices, rising interest rates and a softening housing market -- have investors on edge about whether a larger slowdown is taking place in retailing.

"There are a lot of economic factors out there this year that are making consumers ease up on their discretionary spending," says Arnold Aronson, a retail consultant with Kurt Salmon Associates. "You've got to look for specialty stores with something special or fashionable going on to find the people who are really outperforming at a time like this."

Clothing chains like

Abercrombie & Fitch

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American Eagle Outfitters




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are viewed as especially popular shopping destinations this year. Abercrombie is expected to report a 19.2% comps gain for the month, American Eagle is projected to have a 2.8% increase and Chico's is projected for an 8.7% jump.

On the other hand,


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continues to struggle, with Wall Street forecasting a 3.7% same-store sales decline for the operator of the Gap, Old Navy and Banana Republic chains. Also,

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is expected to be down 3.9%.

"I think, overall, retailers had a moderate Christmas," Aronson said. "I don't think it's going to be anything to be too excited about, but it won't be anything to cry in your beer about either."