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'Dismal' Retail Sales Figures Fan Recession Fears

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By ANNE D'INNOCENZIO, The Associated Press

Published: January 11, 2008

NEW YORK - If anyone is looking for signs that we may be headed into a recession, look no further than the dismal sales results turned in by the nation's retailers in December.

Many merchants who reported sales figures Thursday failed to meet already lowered sales projections, making this the weakest holiday season since 2002 and leading a string of stores to reduce earnings outlooks for the fourth quarter.

The weak results crossed all retail categories. Particularly hard hit were apparel sellers including Limited Brands Inc. and AnnTaylor Stores Corp., as well as department stores including Macy's. Among the few bright spots were low-price operators such as Wal-Mart Stores, which posted results that exceeded Wall Street expectations, as it benefited from shoppers trading down amid higher gas prices and a slumping housing market.

"Overall, the holiday season was dismal," said Ken Perkins, president of RetailMetrics LLC, a research company in Swampscott, Mass. "Consumers are definitely feeling the pain."

Such sluggish holiday results are expected to force retailers to cut inventory, reduce store personnel and close stores.

A number of chains including Macy's and Target Corp. saw their sales slowed in December in part by a quirk in the calendar, which pushed the post-Thanksgiving shopping week into November rather than December. Analysts say it is best to look at the combined November-December figures to get a better picture.

The UBS-International Council of Shopping Centers' same-store sales tally was up a meager 0.9 percent in December, worse than the original prediction of 1.5 percent. That means the November-December period was up 2.2 percent, the weakest holiday period since 2002 when holiday sales rose 0.5 percent. Same-store sales are sales at stores open at least a year and are considered a key indicator of a retailer's health.

The November-December pace was in line with the average for retailers' fiscal year, which begins in late January, but it is well below the 3.6 percent pace in the same year-ago period.

A growing concern for retailers - and, in turn, their suppliers - is the weakening of the job market, which had helped prop up spending for most of 2007. On Jan. 4, the Labor Department's jobs report showed that hiring practically stalled in December, driving the nation's unemployment rate to a two-year high of 5 percent. Another concern is the escalating credit crisis.

Such deterioration in housing and in the credit markets has caused some economists, including Goldman Sachs' Jan Hatzius and Ed McKelvey, to forecast a recession in 2008.

Target reported a 5 percent decline in same-store sales. But on a calendar-adjusted basis, same-store sales rose 0.6 percent, compared to the 2.5 percent analysts expected. The company, which appears to be struggling with internal operational issues, said its fourth-quarter earnings results likely won't meet last year's.

TJX Cos., which operates off-price chains including T.J. Maxx, had a 3 percent increase in same-store sales and raised its fourth-quarter outlook.

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