December Retail Sales Mixed; Apparel Retailers Struggle

U.S. retailers posted mixed December sales, hurt by warm weather and procrastinating shoppers who waited for deep discounts before wrapping up their holiday shopping.

The lackluster sales could dent fourth quarter profits, with retailers like Federated Department Stores, Chico's FAS, and Cache warning their results could be less than expected.

"This is going to be the third month in row ... that the majority of retailers in our index have missed expectations," said Ken Perkins, president of Retail Metrics, which tracks 57
retailers. "That's a little bit concerning as we head into '07," he told Reuters.

He said the emphasis has shifted to January, with hopes that consumers will flock to stores to redeem gift cards they received for the holidays. Retailers, who book revenues after the cards are used, hope customers spend more once they get to stores.

So far, more retailers have missed expectations for December sales than beat them. Of the 55 retailers that have reported thus far, nearly 53% missed forecasts and about 47% beat estimates, according to Thomson Financial. December same store sales -- or sales at stores open at least a year -- rose 3.3% on average, slightly ahead of Thomson's 3.0% forecast.

"Customers were just not out buying early seasonal categories like apparel, sweaters and outerwear," Jeff Klinefelter, retail analyst with Piper Jaffray, told CNBC. "We think that hurt retailers and cut back on some of the traffic...Though, a lot is yet to be seen in January. The season is not over yet, is below expectations."

Wal-Mart Stores , the world's largest retailer, confirmed its preliminary report that December sales at U.S. stores open at least a year rose about 1.6%, its biggest increase since August. The rise topped initial expectations for a 1% gain. Wal-Mart cited strength in electronics and holiday items, but acknowledged seasonal apparel sales were soft.

But the discount retailer remained cautious for the current month, predicting a rise of 1% to 2% in January same-store.

"I think (Wal-Mart is) still not out of the woods," Bob Buchanan, retail analyst at A.G. Edwards, told "Squawk Box." "Basically it comes down to motivating the people, the rank and file in the stores and right now there are still a lit bit of motivation issues."

Target , Wal-Mart's largest competitor, said December sales rose 4.1%, slightly below analysts expectations for a 4.5% increase. The nation's second largest retailer said health care, electronics, and newborn and infant goods were among the best-selling categories, while jewelry and intimate apparel were weaker. For January, Target said it expected same-store sales growth of 3.5% to 5.5%, adjusted to exclude an extra week compared with a year ago.

Department Stores Stage Mixed Performance

JC Penney managed to beat analysts' expectations, with a gain of 2.6% in December same-store sales. But Federated Department Store's rise of 4.4% for December comparable sales was shy of forecasts. Federated also said it expects revenues to be at the low end of guidance of $9.1 million to $9.4 million for its fiscal fourth quarter ending January.

Federated is a "mixed bag," doing well converting old Federated stores to Macy's stores, but having trouble with converting old May stores and introducing a new product mix in the heartland, Buchanan said.

Meanwhile, upscale department store operator JWN Nordstrom saw same-store sales climb 9% last month, well ahead of expectations.

Kohl's , which runs a chain of mid-priced department stores, said December same-store sales climbed 3%, a bit below the 3.4% analysts had been expecting, according to a Reuters survey. Sales were driven by last-minute shoppers the week before Christmas and customers using gift cards after the holiday. Kohl's said it remained comfortable with its previous fourth-quarter earnings forecast of $1.36 to $1.42 a share.

Dillard's posted a 5% decline in December, which was much wider-than-expected.

Flat-Panel TVs and Beef

Costco Wholesale reported a 9% jump in sales at U.S. stores open at least a year for December. The 9% rise in same-store sales significantly beat the 5.6% rise predicted by 10 analysts polled by Reuters.

Sales of big-ticket items like flat-panel televisions and gourmet foods helped results at Costco, Richard Hastings, senior retail analyst at Bernard Sands, told "Squawk Box."

"I saw a lot of people in there buying lots of $75 and $90 rib roasts," Hastings said. "Costco's just got everything nailed down." The stock gained 0.5% in German trading.

Rival BJ's Wholesale did not fare so well. Its December same-stores sales rose just 0.6% and the company warned that quarterly earnings would be lower than expected.

Too Hot to Buy Sweaters

Unseasonably higher temperatures took a toll on retailers focusing on clothing to keep shoppers warm last month.

"Consumers are feeling a little bit freer due to stable oil prices and a mild winter, but the warm weather has hit outerwear, sweater and coat sales," said Dana Telsey, chief research officer.

The holiday season did little to help some of the industry's chronic underperformers. Gap said December sales fell a sharper-than-expected 8% after it resorted to markdowns to drive shoppers into its Gap and Old Navy stores. The struggling retailer also cut the outlook for its fiscal year, and said it is reviewing Gap and Old Navy brand strategies.

Meanwhile, Chico's FAS said December same-store sales fell 2% and the company said it expects earnings for the fourth-quarter ending January to be lower than the consensus estimate.

Limited Brands , which operates Victoria's Secret and Bath & Body Works, said its December sales rose 4%. The company said results fell short of its estimates of a high-single-digit rise as sales missed expectations at Victoria's Secret and in its apparel group.

In teen apparel, Pacific Sunwear reported drop in comparable December sales of 3.2%, about in line with expectations, while Wet Seal said same-store sales rose 1.3%, shy of expectations for a 2% rise. Wet Seal blamed the impact of warm weather on sweater sales. Meanwhile, same-store sales at Guess jumped 9.6%.

Children's Place said sales rose 5%, falling short of expectations. The children's apparel retailer said "unseasonable weather" resulted in higher-than-planned promotional activity, which hurt results.
In other retail reports Thursday, struggling Pier 1 Imports said December same-store sales declined 10.7%, a little wider than expected. Men’s apparel retailer Jos. A Bank reported an unexpected rise in December same-store sales of 1.4% and Urban Outfitters said same-store sales declined 5% last month.