Holiday discounts cut into December profits

NEW YORK — Many retailers reported solid sales gains for December, but the deep discounts and promotions that shoppers have come to expect cut into profits. A range of retailers, including Target and The Children’s Place, reduced their earnings outlooks. Overall, retail sales rose 3.4% at the 22 retailers tracked by the Thomson Reuters same-store sales index, compared with the 3.3% analyst forecast.

Some retailers offered steep discounts during the crucial holiday season. Alison Paul, retail sector leader at Deloitte in Chicago, said the chains that spread their discounts out over the season did well, while those that used up their promotions during the weekend after Thanksgiving suffered.

“The retailers who are still standing are the ones who did their homework several months ago and made decisions about promoting in waves,” Paul told Bloomberg. “Getting promotions right is an art form.”

In the specialty apparel sector, Aeropostale Inc. was one of the biggest losers, posting a 10% drop in same-store sales. Total revenue fell 5% to $682.6 million for the nine weeks ended Dec. 31.

CEO Thomas Johnson said the holiday period "reflected aggressive levels of promotions throughout the mall."

Gap Inc. reported that its overall same-store sales were down 4%. All categories, which encompass the international unit as well as North America's Gap, Old Navy and Banana Republic stores, suffered declines. Banana Republic posted a 2% decline, while sales fell 4% at Old Navy's North America stores, 4% at Gap's North America stores, and 6% at all international stores.

“We expected December to be highly promotional, and while we competed aggressively across our brands, our performance was below our expectations,” said Gap chief executive Glenn Murphy.

Destination Maternity Corp. said its same-store sales fell 4.1% in December amid continued promotions and markdowns. The chain lowered its earnings outlook.

The Children's Place Retail Stores Inc. also lowered its earnings guidance for its fiscal fourth quarter, saying that higher costs and unseasonably warm weather hurt its performance as it sharply marked down prices to move winter clothing. The chain said that its guidance assumes that same-store sales will be about flat for the quarter.

Limited Brands, the parent of Victoria’s Secret and Bath and Body Works, said that its same-store sales jumped 7% in December. The results beat expectations and the company raised its fourth-quarter guidance. Analysts had expected a 5.7% rise.

The Buckle Inc. also did better than Wall Street expected. Its 8.9% increase easily topped predictions for a rose of 5%. The chain cited strong holiday sales of trendy jeans, outerwear and footwear.

In other specialty apparel same-store sales results for December:

  • Zumiez Inc. saw its sales rise 10%, beating estimates of a 5.1% increase. The company also raised its fourth quarter outlook.

  • Hot Topic’s sales rose 1.2%, with sales at namesake stores up 2.2% and sales at Torrid down 3.7%.

  • Cato’s sales fell 1%, in line with its expectations.

  • The Wet Seal Inc.'s sales dropped 3.7%, worse than expected, besting Wall Street's forecast. Revenue fell 10.2% at Arden B and slipped 2.5% at Wet Seal.

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