December sales were disappointing for several of the nation’s mass merchants, as unseasonably warm weather in several parts of the nation deterred shoppers from buying winter seasonal goods.


December sales, mass merchants, Kantar Retail, Target Corp., chairman, president and chief executive officer Gregg Steinhafel, Costco Wholesale Corp., Fred's, Chief executive officer Bruce Efird, Rich Wilson, president and CEO of Duckwall-ALCO Stores Inc., Mark Miller, William Blair & Co., Deutsche Bank analyst Charles Grom,












































































































































































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December retail sales weaker than expected

January 5th, 2012

NEW YORK – December sales were disappointing for several of the nation’s mass merchants, as unseasonably warm weather in several parts of the nation deterred shoppers from buying winter seasonal goods.

According to Kantar Retail and Wall Street analysts, it was a better month for upscale and value-focused retailers, with apparel and accessory retailers and department stores outshining food, drug and mass channels.

The biggest surprise was Target Corp., which posted a 1.6% uptick in comparable-store sales that missed management’s expectations and fell far short of the 3.1% increase predicted by analysts. According to chairman, president and chief executive officer Gregg Steinhafel, weak sales of electronics and media diluted stronger results in grocery and beauty care. "Sales and traffic were strongest in the week leading up to Christmas as guests waited to shop for last-minute gifts," he said in a statement. "In 2012, we’ll continue to pursue initiatives designed to deliver compelling value and a superior shopping experience against the backdrop of continued slow and volatile economic growth."

The disappointing month prompted Target management to lower its fourth-quarter earnings guidance to a range of $1.35 to $1.43 per diluted share from a prior range of $1.43 to $1.53. Analysts had been expecting $1.48 per share.

Results at Costco Wholesale Corp. were better, but still missed Wall Street’s estimate.

Total comparable-store sales rose 7%, with international warehouses leading the way with a 9% increase while domestic units generated a 7% gain. Excluding the positive impact of gasoline sales and the slightly negative effect of currency exchange rates, domestic comp-store sales improved 6% while international locations rose 11%. Results were driven by a solid 5% increase in customer traffic and a 2% rise in average transaction, although excluding the impact of fuel and currency brings down the growth in average ring to 1.5%.

Among regional discount chains, Fred’s Inc. saw comp-store results edge downward 0.4%. Chief executive officer Bruce Efird pointed to unseasonably warm weather that impacted the southeastern chain. "Sales in areas such as heaters, soft lines, automotive and health care products reduced overall comparable-store sales by more than 200 basis points as our customers typically purchase these products as needed," he explained. "We expect a recovery in these product sales as colder weather returns over the next few months. December sales remained strong in several areas, most notably in pet, household supplies and pharmacy."

Rich Wilson, president and CEO of Duckwall-ALCO Stores Inc., based in Abilene-Kan., also blamed warm weather for a slight decline of 0.3% in same-store sales excluding fuel. "The warm weather had a particularly negative impact on cold-weather apparel, but also negatively impacted seasonal products in domestics, automotive and hardware," he said. "Businesses that performed better than the company trend included food, health and beauty, Christmas trim, housewares, home storage, furniture and sporting goods."

In a research note, Mark Miller, retail analyst with William Blair & Co., pointed to another possible factor: e-commerce. "While we anticipated apparel and seasonal merchandise would be adversely affected by unseasonably warm temperatures in the month, we are surprised by the magnitude of the downward EPS revisions for Kohl’s [Corp.} and Target in particular, which highlights the ongoing challenges in the moderate department store sector," he wrote. "Additionally, we believe the category weakness in hard lines for Target and Costco in December were attributable to ongoing market share losses to e-commerce."

Like Miller, Deutsche Bank analyst Charles Grom sees challenges for retailers serving the middle market such as Target, Kohl’s and J.C. Penney Co., while retailers focused on the high and low ends of the market have a brighter outlook. "Looking ahead, this bifurcation theme is likely to persist through 2012 in our view, reinforcing our double-barbell investment strategy," he wrote.

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