By Brad Dorfman
CHICAGO (Reuters) - Deep discounts failed to coax consumers to shop in December, but are sure to sap margins and will likely lead to a number of profit warnings when retailers report sales for the all-important holiday month this week.
With consumers getting hammered by a recession, job uncertainty, tighter credit and falling stock portfolios, discount giant Wal-Mart Stores Inc could be one of the only retailers to post a rise in December sales at stores opened at least a year, according to Thomson Reuters data.
Widespread after-Christmas sales illustrated how much inventory retailers still had on their shelves and analysts caution there is little on the horizon to spur consumers to start shopping again in the first part of 2009.
"I think we are going to see a whole new color of ugly," said Patricia Edwards, retail analyst at Storehouse Partners.
"'Unprecedented' doesn't seem to say enough. 'Ugly' doesn't seem to say enough."
A recent sale by men's clothing retailer Jos. A Bank Clothiers Inc summed up the depth of the discounts.
"Jos. A. Bank giving away three suits for the price of one? C'mon!" Edwards said.
December's same-store sales are expected to be down 1.4 percent from a year ago, according to Thomson Reuters data. That would be the second weakest sales month since Thomson Reuters began tracking sales data in 2000, trailing only November, which had a 7.8 percent decline.
The International Council of Shopping Centers said last week the U.S. holiday shopping season would show its first decline since the ICSC began tracking sales in 1969.
The shopping center group also estimated 148,000 retail stores closed in 2008 and that another 73,000 would do so in the first half of 2009.
But the decline in sales is only part of the issue for retailers. Of more concern to investors will be profit warnings retailers issue as those deep discounts hit margins.
"We expect December (same-store sales) to be lackluster, but are even more concerned about the meaningful gross margin hits (from markdowns) and anticipate worsening trends in January once gift purchasing is out of the picture," UBS apparel retail analyst Roxanne Meyer said in a research note.
Research firm Retail Metrics said fourth-quarter profits for the 122 companies it tracks are expected to be down 19.2 percent. That worsens to a 27.3 percent decline when Wal-Mart is excluded.
WAL-MART SALES SEEN UP
Wal-Mart is expected to post a 2.8 percent same-store sales increase at U.S. stores, while all other retailers together are expected to see same-store sales fall 7.1 percent, Thomson Reuters said.
Teen and children's apparel retailers are expected to do the worst, with an estimated 15 percent decline, while other apparel retailers are expected to be down 8.6 percent. Department stores are estimated to be down 8.1 percent, according to Thomson Reuters.
Winter storms the weekend before Christmas hampered sales in some parts of the country, giving many consumers another reason not to go shopping.
Analysts said traffic at stores picked up after Christmas, but that it was unlikely enough to save the holiday season.
Still, retail stocks have rallied along with the overall market in recent weeks.
The Standard & Poor's Retail index is up 10 percent since retailers reported November sales in the first week of December, in line with the gain in the S&P 500 Index.
Retailers will have a long road ahead before things improve. That road is likely to include more store closings and retailers ordering as little as possible during the spring, summer and fall seasons to keep inventories low and reduce the likelihood of having to mark down unsold items.
"They are going to have to try to hold the line because their margins are getting killed and its a no-win situation," Retail Metrics President Ken Perkins said about retailers.
But retailers that keep inventories low may have a hard time getting consumers to pay full price, since they are getting used to the discounts.
"It's going to take the consumer a while to let go of the effect of 'I'm not buying anything unless it is 50 percent off," Perkins added.
(Editing by Andre Grenon)