December retail sales to spur profit warnings

By Brad Dorfman

CHICAGO (Reuters) - Deep discounts that failed to coax consumers to shop in December are likely to lead to a number of profit warnings this week, when retailers report sales for the all-important holiday month.

With consumers reeling from a recession, job uncertainty, tighter credit and falling stock portfolios, discount giant Wal-Mart Stores Inc could be one of the only retailers to post a rise in December sales at established stores, according to Thomson Reuters data.

Widespread after-Christmas sales illustrated how much inventory retailers still had on their shelves, and analysts caution that there is little on the horizon to spur consumers to start shopping again in the first part of 2009.

The International Council of Shopping Centers estimates 148,000 retail stores closed in 2008 and that another 73,000 would do so in the first half of 2009.

And the ICSC said last week that the U.S. holiday shopping season would show its first decline since the organization began tracking sales in 1969.

"I think we are going to see a whole new color of ugly," said retail analyst Patricia Edwards of Storehouse Partners. "'Unprecedented' doesn't seem to say enough. 'Ugly' doesn't seem to say enough."

A recent sale by men's clothing retailer Jos. A Bank Clothiers Inc summed up the depth of the discounts.

"Jos. A. Bank giving away three suits for the price of one? C'mon!" Edwards said.

Analysts expect December sales at stores open at least 12 months to show a 1 percent drop from a year earlier, according to the most recent Thomson Reuters data. That would be the second weakest month since Thomson Reuters began tracking sales data in 2000, trailing only November, which saw a 2.1 percent decline, or a 7.8 percent drop without Wal-Mart.

But lower sales are only part of the problem. Investors are more worried about profit warnings retailers are likely to issue as those deep discounts hit margins.

"We expect December (same-store sales) to be lackluster, but are even more concerned about the meaningful gross margin hits (from markdowns) and anticipate worsening trends in January once gift purchasing is out of the picture," UBS apparel retail analyst Roxanne Meyer said in a research note.

Research firm Retail Metrics said it expected quarterly profits for the 122 companies it tracks to show a 19.2 percent drop. That worsens to a 27.3 percent decline when Wal-Mart is excluded.

WAL-MART SALES SEEN UP

Analysts expect Wal-Mart to post a 2.8 percent same-store sales increase in the United States and all other retailers to report a combined fall of 4.9 percent, Thomson Reuters said.

Teen and children's apparel retailers are likely to do the worst, with an estimated 11.1 percent decline, while same-store sales at other clothing chains are expected to be down 8.4 percent. Department stores are estimated to be down 7.8 percent, according to Thomson Reuters.