Retailers Look for a Miracle at the Mall

With the time running out on the 2002 holiday sales season, retailers are hoping that heavy discounting and brisk post-Christmas shoppers will push sales to $209 billion, making the season a success.

"It's touch and go, but it's not out of the question," says Scott Krugman, spokesman for the National Retail Federation. According to Krugman, the pattern this year is similar to that of 2001, when sales ultimately increased by about 5.6% year over year after being slow as late as the day before Christmas.

The NRF has forecast retail sales of $209 billion for November and December, a 4% increase over last year's sales of $201 billion.

Despite the NRF's doggedly optimistic stance, most of the other indications today were far from upbeat.

Retail giant Wal-Mart ( WMT) lowered its already low expectations on December sales Thursday, saying that it expects same-store sales to increase a meager 2% to 3% over last year, down from an earlier forecast of 3% to 5%. Despite a surge in last-minute sales, "the increase was too late and too little for us to reach our sales plan," Wal-Mart said in a recorded update.

Wal-Mart's December same-store sales rose a stronger-than-expected 8% last year, despite the hangover from the Sept. 11 attacks.

The bad news prompted analysts at Prudential Financial to cut earnings estimates for the Bentonville, Ark.-based retailer. Walter Hood and Mathew Laing lowered their current quarter sales estimate to 53 cents a diluted share, from 56 cents, which lowered fiscal 2002 estimates to $1.77 from $1.80. Consensus estimate of analysts polled by Thomson Financial/First Call is 55 cents a share for the quarter and $1.79 for the fiscal year. Prudential does no investment banking. W.R. Hambrecht has a banking relationship with the retailer.

Retailers were offering deep discounts in hopes that the week after Christmas would be busier than the week before, which fell short of many retailers' expectations. The suspects: a late Thanksgiving that chopped several days out of the sales cycle, continued high unemployment and low consumer confidence.

A report by UBS Warburg said same-store sales for Federated ( F), Target ( TGT) and J.C. Penney ( JCP) were below plan in mid- to late December, although Penney reported slightly better-than-expected results for the month so far. Despite the poor holiday reports, W.R. Hambrecht analyst Bill Dreher said the chain should still meet earnings per share estimate of 76 cents for the quarter, a gain of 3 cents over the year-earlier quarter.

If there was a bright spot, it was in Internet sales. Online portal MSN, for example, saw a 50% increase in traffic this quarter to its network of Internet shopping sites, compared with last year's fourth quarter, and said record sales of $10.7 billion were posted. The Sharper Image ( SHRP), which relies heavily on the Web and catalog sales, reported that preliminary December sales through Dec. 24 totaled a record-breaking $111 million, a 28% increase over the $86 million for the same Dec. 1 to 24 period in the prior year.

"All of our retail sales channels -- stores, Internet and direct sales, including catalog and infomercial -- had excellent December holiday sales," said Richard Thalheimer, the company's founder, chairman and chief executive officer.

Amazon ( AMZN), the world's largest online retailer, said it had finished its "busiest holiday season ever" with more than 56 million items ordered worldwide from Nov. 1 to Dec. 23, 2002. But Amazon took a beating on the Street, shares down $1.73, or 7.9%, at $20.15 on higher-than-average volume in afternoon trading. Analysts said there was no particular news about Amazon, and attributed the dropoff to the Wal-Mart news, and profit-taking. Before today, Amazon had risen more than 30% since its lows in early October.

One continuing bright spot in the holiday season has been online sales. Consumers spent $1.4 billion online last week in non-travel and non-auction goods and services, according to a report released Tuesday by ComScore Networks. That was up 18% from the week before Christmas last year.

Despite the heady growth, even online sales have been somewhat disappointing. ComScore had projected that fourth-quarter online spending, excluding that on travel and auction sites, would grow 27% over the same period last year to $13.8 billion. To date, consumers have spent $12.1 billion online, excluding travel and auction sales, up $9.7 billion, or 25%, from the same period last year.

Staff writer Troy Wolverton contributed to this report

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