Local retailers Family Dollar and Cato Corp. cut forecasts for their financial performance Thursday as December sales slumped unexpectedly at both companies and national retailers reported decidedly mixed holiday-season results.
Around the country, economic anxiety dampened results at some retailers, such as Target, which saw flat sales in December, and Kohl’s, which said its sales rose 3.4 percent – but largely because of unplanned discounts that will hurt profits. Others did better, and some, including Costco, Gap, and Nordstrom, reported higher-than-expected results.
Consumers spent cautiously during much of the holiday season as damage from Hurricane Sandy lingered and worries about the “fiscal cliff” persisted. But analysts said late spending, much of it spurred by discounts, was able to salvage much of the retail season.
“I wouldn’t be doing cartwheels that it was a particularly great or strong holiday season, but it could have been worse given the headwinds,” said Ken Perkins, president of RetailMetrics, a research firm.
Twenty retailers reported that revenue at stores open at least a year – a figure that indicates a retailers’ health – rose an average of 4.5 percent in December compared with the year-ago period, according to the International Council of Shopping Centers.
But at Cato and Family Dollar, December sales didn’t catch up with earlier expectations.
Sales of discretionary items at Matthews-based Family Dollar, such as toys and holiday decorations, were weaker than expected. Executives said consumers retrenched and spent more on basic, low-profit-margin necessities, and put the blame on heightened uncertainty and a shaky economy in the last two months.
“The holiday selling season proved to be more challenging than we expected as customers faced increasing financial uncertainty,” CEO Howard Levine said. “Discretionary categories continued to be pressured, reflecting ongoing consumer caution.”
At Charlotte-based apparel retailer Cato’s 1,311 stores, total sales fell 4 percent in December compared with the same month last year, and sales at stores open for a year or more fell 7 percent. “December same-store sales results were well below expectations and our year-to-date trend,” CEO John Cato said in a statement.
As a result, the company trimmed its guidance for fourth-quarter earnings per share to 34 to 36 cents, down from 38 to 42 cents.
Family Dollar stock falls
Family Dollar, which employs some 1,400 people at its Matthews headquarters, slashed its full-year earnings-per-share guidance for fiscal 2013 to $3.95 to $4.20, down from an earlier forecast of $4.10 to $4.40.
Investors pummeled the company’s stock. Shares of Family Dollar lost $8.30, or almost 13 percent, to close at $55.74. That was the stock’s biggest drop since December 2000, according to Bloomberg.
The retailer, which operates more than 7,500 discount stores, also reported its first-quarter earnings results Thursday.
For the quarter ending Nov. 24, Family Dollar said sales were up 12.7 percent to $2.42 billion. Sales at stores open for a year or more were up 6.6 percent. But profit edged down less than 1 percent, to $80.3 million.
Family Dollar said comparable store sales in December, the first month of Family Dollar’s second quarter, rose just 2.5 percent. That was down from high single-digit sales growth in the preceding two months, executives said.
The company’s ongoing effort to stock more consumable goods, such as food, tobacco, and health and beauty items, continued to pay off by attracting customers in search of necessities, and driving up the company’s revenue.
Sales of consumables rose 18.5 percent to $1.8 billion, accounting for the bulk of Family Dollar’s quarterly sales. But sales of home products fell 1.5 percent, and apparel and accessories fell 4.4 percent.
Since consumable goods generally have lower profit margins, the “mix shift” in items led to a lower gross margin for Family Dollar. Gross profit margins fell more than 1 percentage point during the quarter, to 34.14 percent, down from 35.26 percent.
During Thursday’s conference call, Levine emphasized that he remains optimistic about Family Dollar’s long-term growth and health, and he said the company is pushing ahead with plans to open 500 new stores this year. But he said it will look to rein in expenses as it expects pressure on consumers to continue.
“Clearly, there will be a strong headwind facing us, and we’ll be taking more of a defensive posture to mitigate markdowns,” Levine said.
Although he expects the company’s results to improve, Levine acknowledged that all might not be smooth sailing ahead.
“Candidly, I think we’ll need some help from the economy,” he said. The Associated Press contributed.
Portillo: 704-358-5041 On Twitter @ESPortillo
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