By Ylan Q. Mui
Washington Post Staff Writer
Friday, January 5, 2007

Retailers are like little kids when it comes to the holidays: They always hope it will be perfect, and they are always disappointed.

Though a full picture of the busiest shopping season of the year won't emerge until later this month when the Commerce Department publishes its tally of December sales, results from more than 40 national chains released yesterday offered a window into what it might look like -- and, for the most part, it fell short of what retailers hoped for.

The International Council of Shopping Centers, a trade group, estimated that December sales at stores open at least a year -- known as comparable or same-store sales -- grew 3.1 percent from 2005. Although that means retailers took in more money, the figure is lower than the growth of 3.6 percent in December 2005. And that makes retailers and investors moody.

Industry experts blamed this season's warm weather as one of the factors limiting growth. They also pointed fingers at procrastinating customers; unplanned markdowns; and gift cards, which stores can't count as sales until they are redeemed.

"More so than in past seasons, this holiday season came down to the week before Christmas," said Michael P. Niemira, chief economist for the ICSC.

Catalogue sales were not counted in the tally, and neither was online shopping, which was bountiful, reaching $24.6 billion in November and December, according to ComScore Networks, a market research firm. That was a 26 percent increase over 2005. Online spending for the entire year hit more than $100 billion for the first time. The busiest day of the year was Dec. 13, when online retailers did $666.9 million in sales, ComScore found.

That gave Gian Fulgoni, ComScore chairman, a rosy view of the season.

"The online holiday shopping season of course played a vital role in the year's success," he said.

But at clothing chains, same-store sales fell by 0.9 percent last month compared with the previous year. The stores made up the only chain retail sector to experience a decline, according to an estimate by the ICSC. The trade group said December was the warmest in five years, hurting clothing sales.

Gap reported one of the industry's largest comparable-sales declines last month, falling 8 percent and leading it to revise its earnings estimate for the year. The retailer said it had to mark down merchandise because of slow store traffic, eating into profit.

"We are clearly disappointed," said chief executive Paul Pressler.

Same-store sales also declined by single-digit percentages last month at teen retailers Abercrombie & Fitch, Hot Topic and Pacific Sunwear and at women's stores Ann Taylor and Chico's FAS. Others, such as Bebe, Limited Brands and Children's Place, posted sales growth but failed to meet analysts' expectations. The notable exception was children's clothing chain Gymboree, where comparable-store sales skyrocketed 15 percent thanks to new marketing and merchandising efforts, the company said.

The weather also contributed to weakness at some discount and department stores. December same-store sales at Wal-Mart grew a better-than-expected 1.6 percent. Still, coupled with November's flat sales, the holiday season added up to one of the worst on record for the retailer, according to some analysts.

However, the company said it did well in electronics, particularly in digital televisions, computers and video game systems. Wal-Mart threw down the gauntlet early in the season by slicing prices on key holiday items, such as a 42-inch flat-panel TV and scores of board games. It pumped up spending in marketing and focused relentlessly on low prices this year, hoping to make up the difference in sales volume.

Wal-Mart was not alone in its disappointment. Even Target, its biggest rival, achieved only a modest 4.1 percent increase in December same-store sales. As Christmas neared, many retailers found themselves with racks of merchandise still on hand as shoppers waited for bigger discounts.

"The sales numbers were often hurt by the step-up in promotions as the holiday progressed," said Frank Badillo, senior economist at Retail Forward, a consulting firm. "Retailers sold a lot of product, but it often wasn't at the price points they hoped for."

The big winners last month were luxury department stores. The ICSC estimated that sales for the group grew 8.2 percent over December 2005, the best performance of any sector. At Saks Fifth Avenue, comparable-store sales grew 11.1 percent, driven by women's apparel, shoes and handbags. Nordstrom performed well, with sales up 9 percent.

Federated Department Stores, which owns Macy's and Bloomingdale's, fell short of its sales estimate for the month, with an increase of 4.4 percent. Chief executive Terry J. Lundgren said the firm was struggling with home merchandise, particularly at locations once owned by May Department Stores.

Several big players did not report December sales results yesterday, including Circuit City and Best Buy, which both had long lines and some of the season's hottest items.

Staff writer Martha M. Hamilton contributed to this report.