Wal-Mart Posts Surprise Miss as Retailers' Sales Tank

Wal-Mart slashed its fourth-quarter earnings forecast as it reported same-store sales that missed forecasts, signaling that even discount retailers are feeling the pinch of the economic slowdown.

Retail sales tanked in December and some analysts say consumer spending will never be the same again.

The discount giant was among the early retailers reporting same-store sales for December, a crucial month for retailers since it includes the all-important holiday-shopping season, which was dismal last year.

U.S. retailers faced the worst holiday shopping season in nearly four decades as a year-long recession, tighter credit and mounting job losses have squeezed household budgets. That forced retailers to slash prices dramatically, crunching margins.

“Discretionary spending is DOA — dead on arrival,” declared Howard Davidowitz, chairman of retail-consulting and investment-banking firm Davidowitz & Associates.

Today's reports were, not surprisingly, dismal, and accompanied by at least a dozen profit warnings, including Macy's and Target.

Overall same-store sales dropped 1.7 percent in December and 2.2 percent for the whole November-December season, the International Council of Shopping Centers reported, marking the worst holiday since at least 1969, when the ICSC started keeping track.

Of 35 retailers that have reported same-store sales so far, more than half beat sales estimates, while 42 percent missed and 3 percent met targets, according to Thomson Reuters.

The biggest surprise came from Wal-Mart, which reported its same-store sales rose 1.7 percent last month, well shy of the expected 2.8-percent increase, and slashed its forecast.

Video: CNBC's Margaret Brennan discusses Wal-Mart's unhappy holiday season.

The fact that Wal-Mart, which had been faring better than other retailers as cash-strapped shoppers flocked to the chain to take advantage of its low prices, delivered the biggest surprise was a telling sign of the season.

"This suggests that the lower-income group is feeling the pinch more than we thought and this is clearly reflected in the lower-than-expected numbers at Wal-Mart," Ken Perkins, president of research company RetailMetrics, told the AP. "I think it says the economy is in more dire straits than we thought."

For January, the world's largest retailer expects same-store sales to be flat to up 2 percent.

Wal-Mart lowered its earnings forecast to 91 to 94 cents a share for its fiscal fourth quarter, from its prior guidance of $1.03 to $1.07 a share, issued in November.

Shares of Wal-Mart sank more than 7 percent.

Meanwhile, its hipper rival, Target saw its sales fall 4.1 percent, but managed to beat forecasts, which had called for a more severe decline of 9.1 percent.

Target shares initially rose, but then did an about-face, falling more than 2 percent, as the discount chain said January sales could show a mid-single-digit percentage decline.

The same-store sales extravaganza kicked off this morning with Costco, which beat forecasts, but also with reports of shop closures for Macy's and sales at smaller retailers plunging.

Wholesale Clubs Take a Hit From Gas-Price Drop

Costco Wholesale had been on track to be one of the season's other retail stars, but saw its same-store sales drop 4 percent, hit by the sharp drop in gasoline prices and foreign-exchange losses. U.S. same-store sales fell 2 percent, while sales tumbled 11 percent at its international division. If you ex-out the gasoline-price deflation, U.S. same-store sales would've been up 2 percent.

Costco, which competes with Wal-Mart's Sam's Club and BJ's Wholesale Club , said demand was strong in its foods business but weak for non-food items.

BJ's reported its same-store sales rose 1.6 percent, including the impact of falling gasoline prices. When you take out gasoline, BJ's sales jumped 5.9 percent.

Warehouse clubs like Costco were once viewed as a relatively safe haven amid beaten-down U.S. retail stocks, as shoppers sought out their discounted prices on food and toiletries.

But recent weakness has shown its business is not immune from effects of the recession as consumers cut back across the board.

Luxury Loses Its Luster

Department stores ran the gamut, with the most pain on the high end.

Upscale-department store Saks reported its same-store sales plunge 19.8 percent, double of what analysts had expected. The weakest categories were women's apparel, outerwear, men's clothing and advanced sportswear, women's shoes and handbags. Evening wear, bridal, children's apparel, jewelry and fragrances showed "relative strength."

Nordstrom reported its same-store sales fell 10.6 percent and said its fourth-quarter earnings wouldn't meet its target of 35 to 45 cents a share. The luxe shop also said deep markdowns would prevent it from hitting its fourth-quarter earnings target.

Luxury jeweler Tiffany doesn't report same-store sales until next week but in November projected that same-store sales would be down 25 to 35 percent for the fourth quarter.

Zale said same-store sales fell 22 percent.

"This holiday period was the most difficult in memory due to the overall macroeconomic situation," Zale CEO Neal Goldberg said in a news release. "This environment dictated a very aggressive promotional stance with a focus on cash flow and inventory levels."

Macy's to Close 11 Stores

Macy's same-store sales fell 4 percent and the department-store chain said it would close 11 stores.

Macy's also lowered its forecast, pegging earnings between 90 cents and $1 a share for the fourth quarter, compared with its previous guidance of $1.10 to $1.30 a share.

The company expects to end the fourth quarter with more than $1 billion in cash on hand and no borrowings against its $2 billion bank credit agreement, Macy's said in a statement.

Meanwhile, JCPenney reported its sales fell 8.1 percent and Kohl's fell just 1.4 percent.

Sears Holdings reported its overall same-store sales fell 7.3 percent. Sales at its flagship Sears stores dropped 12.8 percent, while Kmart stores saw sales fall just 1.1 percent, which the company said was helped by its layaway program.

However, Sears said it expected to beat its profit target and the stock jumped 20 percent.

J Crew also lowered its forecast, saying it now expects a loss of 24 cents to 29 cents a share for the quarter, compared with its prior estimate for a profit of 5 to 10 cents a share.

Shares of J Crew tumbled 15 percent.

Overall, retailers' fourth-quarter sales are expected to  drop 19.3 percent, according to research firm Retail Metrics. If you take out Wal-Mart, that balloons to a 27.5-percent decline.

Teen retailers, like luxury, have proven that they're not immune to economic downturns.

American Eagle Outfitter's same-store sales tanked 17 percent in December to $493.5 million, more than expectations by analysts polled by Thomson Reuters of 12.3 percent. The teen chain also cut its earnings forecast to 19 to 21 cents a share from its prior view of 30 to 36 cents a share.

Abercrombie & Fitch reported its same-stores sales dropped 24 percent.

It was a tough year for specialty retailers as well.

Gap's comparable-store sales tumbled 14 percent, compared to expectations for a drop of 9.3 percent, compiled by Thomson Reuters.

Limited Brands and Pacific Sunwear , logged same-store sales declines of 10 percent.

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