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financial

Dec. Comps Expected to Take Hit

Steep markdowns along with negative macroeconomic factors are expected to take a heavy toll on December same-store sales results, which are scheduled for release on Thursday.

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Analysts predict Aeropostale will do well in the specialty sector when December comps are reported Thursday

Analysts predict Aeropostale will do well in the specialty sector when December comps are reported Thursday.

Photo By WWD Staff

Steep markdowns along with negative macroeconomic factors are expected to take a heavy toll on December same-store sales results, which are scheduled for release on Thursday.

Analysts are expecting weak results for the month at retailers across all of the major channels. "Virtually all interested parties have already concluded that December was a very weak month. Analyst earnings and comp estimates have been sliding and public commentary and press releases from companies have already stated poor December results," said Mark Montagna, analyst at CL King & Assoc., in a research note Monday.

Montagna also said that aggressive promotional activity at department stores will likely result in weaker results for specialty retailers as shoppers were lured away.

"We think December was a sluggish month for retailers and comps will be muted," added Roxanne Meyer, analyst at CIBC World Markets.

Analysts said macroeconomic indicators are continuing to hit sour notes with consumers, impacting their confidence. Last week, employment numbers showed the slowest growth in more than four years, and unemployment figures rose to the highest point since 2005.

Fears of a recession this year also affected holiday shopping throughout the Christmas season. A slight uptick in traffic and sales at the end of the season was not enough to offset overall weak sales, analysts said.

"We expect most of the broadline retailers to deliver on- to below-plan December comps, driven by a slower-than-expected pre-Christmas season," said Deborah Weinswig, Citigroup analyst, adding that "favorable weather and a pickup in last-minute and post-Christmas sales (driven by increased promotions)" will likely offset some of the negatives.

"Notably we expect apparel to be weak, while the high end should remain healthy," Weinswig said.

Still, there were other positives. Eric Beder, analyst at Brean Murray Carret & Co., said in a note that the investment community and press had ignored positive changes on the supply side that could buoy some retail results. Lower inventory levels drove strong margins at some retailers who could weather December results, he said.

As of Monday, the S&P Retail Index had declined about 9.6 percent since Dec. 24 versus a drop of 5.7 percent in the S&P 500, Beder noted.
Meanwhile, teen retailer Aéropostale Inc. is expected to be the winner in the specialty channel this holiday. According to analysts, the company was able to capture material "trade down" business with more fashion-forward items, stealing market share from American Eagle Outfitters Inc. Beder predicts same-store sales for the retailer to be in the range of a gain of 2 to 4 percent. Shares closed up Monday 4.8 percent to $27.32.

Pre-releasing results on Monday, action sport retailer Zumiez Inc. said same-store sales gained 3.9 percent, but the retailer slashed guidance, sending shares to a new 52-week low. Shares fell to $16.16 in morning trading, later closing down 9.2 percent to $16.94.

The company, which said December comps "fell short of expectations," cut full-year guidance to the range of 82 cents to 83 cents for the year. Previously, it expected earnings in the range of 92 cents to 94 cents a share.

Investors, meanwhile, flocked to Zale Corp. after Breeden Capital Management increased its stake in the jewelry store to 15.9 percent. Shares soared 10.8 percent at the bell to $15.03.

For Talbots Inc., shares continued trading lower on Monday after reaching a new 52-week low on Friday when the company said it was closing its struggling kids' and men's divisions, and warned of disappointing sales.

The stock shed 1.7 percent, closing at $9.30. The decline was on top of an 11.4 percent drop on Friday. This brings shares well below the 52-week high of $26.40.

Talbots said last week it was closing 78 stores, 66 kids' and 12 men's stores, by September 2008, to focus on its core business.

The closures will result in pretax charges of 46 to 55 cents a share over the next four quarters. Analysts also expect to see additional closures in the company's core concept. With 1,079 stores, Talbots is one of the largest specialty players in the market.

Talbots also said that fourth-quarter sales have fallen below expectations at both the Talbots and J. Jill brands. Richard Jaffe, retail analyst at Stifel Nicholas, predicts a 9 percent comp decline for December.

"Despite already having set a very low bar, in our view, core Talbots and J. Jill are trending below plan quarter-to-date," said Roxanne Meyer, retail analyst at CIBC World Markets, in a research note. "This likely will have negative implications for Chico's and Coldwater Creek as well. At this point, we believe the stocks are mostly pricing in a fourth-quarter shortfall; it's 2008 where downside potential still exists." Investors are still waiting on the appointment of the next president of the J. Jill brand.
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