Reuters, Published January 09 2014
Steep discounts hurt retailers' holiday profitsNEW YORK - Steep discounts that U.S. retailers used during the holiday season to lure shoppers helped sales but forced many chains to slash profit forecasts.
A group of eight retailers in the Thomson Reuters Same-Store Sales Index reported on Thursday that December sales at stores open at least a year rose a stronger-than-expected 2.7 percent.
But those sales gains came at a steep price - lower profit margins.
Fewer store visits and aggressive pricing at the start of the season by big retailers like Amazon.com Inc and Wal-Mart Stores Inc left many chains with little choice but to offer sweeter deals this holiday season. Many also had too much holiday merchandise, which was ordered in late spring when retail executives were feeling upbeat.
"The discounts needed to be deeper, and they needed to be longer," said Joel Bines, managing director of consulting firm AlixPartners.
Those bargains led many chains, including L Brands, Family Dollar Stores Inc and teen retailer Zumiez Inc , to slash their profit forecasts. Even retailers that reported big sales gains, like Kay Jewelers parent Signet Jewelers Ltd, were not spared.
"Additional discounting was necessary in a highly promotional retail environment," Signet Chief Executive Officer Mike Barnes said in a statement. Shares of the jeweler were down more than 6 percent even though it reported a 5 percent increase in same-store sales for the November-December holiday season.
L Brands cut its holiday-quarter profit forecast on disappointing December sales at its Victoria Secret and La Senza chains. Its shares fell nearly 5 percent.
L Brands' sales at stores open at least year rose 2 percent last month, less than the 3.7 percent Wall Street expected, according to Thomson Reuters I/B/E/S.
Teen retailer Zumiez reported an unexpected drop in same-store sales.
Gap Inc, which is part of the same-store sales index, will report after markets close.
DEALS, AND MORE DEALS
Between Nov. 3 and Jan. 4, eight retailers, including Wal-Mart Stores Inc, Target Corp and Macy's Inc , increased the number of circulars published by 6 percent and sent 57 percent more promotional e-mails, according to data prepared for Reuters by MarketTrack.
Retailers also had to deal with shoppers who were less willing to go into stores: Data firm ShopperTrak this week said foot traffic had dropped 14.6 percent this holiday season.
Walgreen Co, whose comparable sales of general merchandise rose 2.5 percent in December, said fewer shoppers had come to its drugstores.
Small clothing chain Cato Corp also slashed its profit forecast after reporting poor December sales.
Still, some retailers offering staples at low prices fared well. Warehouse club chain Costco Wholesale Corp reported a 5 percent gain in U.S. same-store sales for December, while Wall Street was expecting only 1 percent.
American Eagle Outfitters Inc said comparable sales for November and December fell 7 percent and that it expected its quarterly profit to come in at the bottom of its earlier forecast range of 26 cents to 30 cents per share.
Signet's U.S. comparable sales rose 5 percent for the combined November-December period. Family Dollar's same-store sales fell 3 percent last month.
American Eagle, Signet and Family Dollar are not part of the same-store sales index.