* What: December U.S. same-store sales seen down 1 pct
* When: Jan. 7 and 8
* Margins seen hit by “unprecedented” discounting
* After-Christmas traffic boost unable to save season (Updates Thomson Reuters data)
By Brad Dorfman
CHICAGO, Jan 6 (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 (WMT.N) 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 JOSB.O 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.
Winter storms the weekend before Christmas hampered sales in some parts of the country, giving many consumers another reason not to go shopping.
Analysts said traffic at stores picked up after Christmas, but probably not enough to save the holiday season.
For the week ended on Saturday, sales were up 1.4 percent from the prior week, but down 0.8 percent from a year earlier, according to the ICSC-Goldman Sachs weekly chain store sales index.
Still, retail stocks have rallied along with the overall market in recent weeks.
The Standard & Poor's Retail index .RLX is up about 13 percent since retailers reported November sales in the first week of December, exceeding the 11 percent gain in the S&P 500 Index .SPX.
Wal-Mart shares, down about 0.4 percent at $55.95 on Tuesday, had outperformed most retailers in 2008, but are up only about 2 percent since early December.
Retail gainers on Tuesday included Talbots Inc TLB.N, up 35 percent after working out new credit agreements with several banks. Pier 1 Imports Inc (PIR.N) rose more than 54 percent, and Borders Group Inc BGP.N jumped 12 percent; both trade at less than $1.
Retailers will have a long road ahead before things improve. Besides more store closings, retailers are likely to order as little as possible during the spring, summer and fall seasons to keep inventories low and avoid having to mark down unsold items.
“They are going to have to try to hold the line because their margins are getting killed and it’s a no-win situation,” Retail Metrics President Ken Perkins said.
But retailers that keep inventories low may have a hard time getting full price for them, since consumers are getting used to the discounts.
“It’s going to take the consumer a while to let go of the effect of ‘I’m not buying anything unless it is 50 percent off,” Perkins added. (Editing by Andre Grenon and Lisa Von Ahn)