December Retail Sales Ho-Hum: 5 Stock Losers

NEW YORK ( TheStreet) -- Retailers got more coal than presents in their stockings in December.

Of the 26 retailers tracked by TheStreet, 13 missed expectations, 12 topped forecasts and one fell in-line with estimates.

Overall, December same-store sales rose 3.1% according to the International Council of Shopping Centers. The research firm was looking for a 3.5% increase.

December was especially disappointing given the strength in November, but it is now clear this post-Black Friday hype served to simply pull sales out of December into November. It did not generate more sales or push shoppers to extend their budgets, as both retailers and Wall Street had hoped.

"In many respects, December was more in tune with the trend throughout 2010 -- selective buying once a budget was met or selective buying if the promotion was not there or eye-catching," Wall Street Strategies analyst Brian Sozzi, wrote in a note.

So what went wrong? Early data from research firms regarding holiday sales were misleading, serving to inflate Wall Street's outlook. Investors also underestimated the impact from treacherous weather that hit most of the U.S. toward the end of the month.

Of course, there were spots of optimism out of teen retailers Abercrombie & Fitch ( ANF) and Buckle, high-end department stores Nordstrom ( JWN) and Saks ( SKS) and off-price retailers TJX ( TJX) and Ross Stores ( ROST).

Another positive during the month was online sales, which are generally not included in same-store sales tallies. Notable online sales increases occurred at Hot Topic ( HOTT), Wet Seal ( WTSLA), American Eagle Outfitters ( AEO), Macy's ( M), Abercrombie & Fitch ( ANF) and Nordstrom ( JWN).

And holiday 2010 is still the strongest since 2006, with November and December same-store sales combined jumping 3.8%, according to the ICSC. In 2006, the same figure rose 4.4%.

But overall, December serves as a stark reminder that the consumer recovery is far from solidified, as shoppers still grapple with stubbornly low unemployment, liquidity issues, confidence and now potentially higher prices at the gas pump.

So, do investors buy retail stocks on today's dip? Sozzi advises against such a move. "Sentiment on the sector is souring and I see that being the case until we get on the fourth-quarter earnings calls and receive color on the cost backdrop, inventory plans and cap-ex plans for the next year," he wrote.

Here's a look at some of the biggest retail sales flops in December.


Zumiez ( ZUMZ) reported one of the strongest December sales numbers in the teen sector, but it wasn't enough to impress investors.

Shares of the skate and surf inspired retailer are tanking nearly 10% to $24.04 in morning trading, as comparable sales jumped 9.2%, less than the 11.5% gain Wall Street predicted.

This disappointment stems from Zumiez being less promotional than its mall peers. The stores also cater more to self purchases rather than gift items, which Janney Capital Markets analyst Adrienne Tennant says could have hurt the company.

The near term outlook for Zumiez remains cloudy, as the company faces difficult comparisons in February and March, which could keep shares range-bound. But any weakness in the stock should be viewed as a long-term buying opportunity, Tennant advises.

"We do point out that the investor base has been predominantly momentum-driven investors who often sell at the first miss, and we believe this affords longer-term growth investors an opportunity to start and accumulate positions," she wrote in a note.

Zumiez should also benefit from the pains of Pacific Sunwear of California ( PSUN), which reported a disappointing 7% drop in same-store sales for the quarter-to-date period. Pacific Sunwear has been shifting its merchandise to target an older demographic, which could allow Zumiez to pick up some market share in the core teen customer.

American Eagle Outfitters

American Eagle Outfitters ( AEO) reported the biggest miss in the teen sector, with same-store sales plunging 11% versus a much smaller 1.7% decline analysts expected.

As a result of the disappointing numbers, American Eagle lowered its fourth quarter guidance, now expecting to earn between 41 cents and 43 cents a share. The company previously forecast profit in the range of 43 cents to 46 cents a share, while Wall Street is calling for earnings of 45 cents.

Nonetheless, shares of American Eagle are still climbing 5% to $15.19.

Both American Eagle and Aeropostale continue to show signs that they are struggling to hold ground against more promotional competitors like Abercrombie & Fitch.

While American Eagle planned inventory conservatively in the fourth quarter, American Eagle ended December with deeper promotions than last year.


Aeropostale ( ARO) reported a 5% drop in December same-store sales, more than the 2.6% decline Wall Street predicted.

This shouldn't come as too much of a surprise, as the teen retailer entered the month after an overall lackluster Black Friday weekend. The biggest assault on Aeropostale has been the deep use of promotions at Abercrombie's Hollister chain.

But shares of the teen retailer are gaining 3.8% to $25.25 in morning trading after the company reiterated its fourth quarter guidance. Aeropostale is calling for a profit of 94 cents to 96 cents a share, in-line with estimates.

"Despite a highly competitive holiday season and a shortfall in sales, Aeropostale was able to stick to its planned promotional cadence in the month," Stifel Nicolaus analyst Richard Jaffe, wrote in a note.

The first quarter of 2011 will be critical for Aeropostale as we will get a better picture of long-term pricing cadence in the teen sector.

The recent departure of Co-CEO Mindy Meads is also something that deserves a closer look. "Tom Johnson is not a merchant, he is an operations guy," Samuels wrote. "That leaves us wondering, who is going to be in charge of placing the critical holiday 2011 orders?"

Aeropostale has also been the subject of takeover chatter in recent months.


Gap ( GPS) returned to negative same-store sales territory, as December numbers declined 3% compared with the 2.6% advance analysts predicted.

Prior to November's brief uptick in comparable sales, the specialty retailer had reported seven consecutive months of declines.

By division, namesake stores reported an 8% plunge, Banana Republic inched up 1% and Old Navy declined 2%.

Gap reiterated its full-year guidance of $1.77 to $1.82 a share, below Wall Street forecast of $1.83 a share.

"Gap fell short of already muted expectations, reflecting our view that those with less robust comps/assortments heading into December would underperform," UBS analyst Roxanne Meyer, wrote in a note.

Shares of Gap are tumbling 7.8% to $20.50 in morning trading.


Target's ( TGT) aggressive pre-Black Friday promotions in November actually hurt December results.

The discounter reported a 0.9% uptick in same-store sales, significantly less than the 4% increase analysts expected, sending shares down 6.4% to $55.33 in morning trading.

Target guided fourth-quarter earnings in-line with analysts' estimates of $1.40 a share, but stronger credit metrics and a lower tax rate were cited as key drivers. " This is not what the market generally will pay for with this stock," Janney Capital Markets analysts David Strasser, wrote in a note.

Traffic was only up slightly despite multiple initiatives like its 5% RedCard loyalty program and its continued roll out of its P-Fresh grocery segment.

By category, Target's grocery segment was up low double-digits, and health and beauty saw mid-single digit comparable sales due to the units recent remodel. Apparel strength was also impressive. But hardlines were down in the mid-single digits due to weakness in electronics, toys and sporting goods.

While analysts previously believed Target was a market share gainer in televisions, softness in the sector across the industry also weighed on the company.

Strasser attributes slower toy sales to more Toys 'R' Us pop-up stores throughout the country.

-- Written by Jeanine Poggi in New York.

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